EX-99.1 2 d724266dex991.htm EX-99.1 EX-99.1
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Exhibit 99.1

BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

UNAUDITED INTERIM CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2014 AND DECEMBER 31, 2013 AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2014 AND 2013

INDEX

 

    Page  

Unaudited Interim Condensed and Consolidated Statements of Financial Position of Brookfield Infrastructure Partners L.P.

    1   

Unaudited Interim Condensed and Consolidated Statements of Operating Results of Brookfield Infrastructure Partners L.P.

    2   

Unaudited Interim Condensed and Consolidated Statements of Comprehensive Income (Loss) of Brookfield Infrastructure Partners L.P.

    3   

Unaudited Interim Condensed and Consolidated Statements of Partnership Capital of Brookfield Infrastructure Partners L.P.

    4   

Unaudited Interim Condensed and Consolidated Statements of Cash Flows of Brookfield Infrastructure Partners L.P.

    5   

Notes to Unaudited Interim Condensed and Consolidated Financial Statements of Brookfield Infrastructure Partners L.P.

    6   

Management’s Discussion & Analysis.

    24   

Brookfield Infrastructure Partners L.P. (the “partnership” and together with its subsidiary and operating entities “Brookfield Infrastructure”) owns and operates high quality, long-life assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, by virtue of barriers to entry or other characteristics, tend to appreciate in value over time. Our current operations consist of utility, transport, and energy businesses in North and South America, Australasia and Europe.

Brookfield Asset Management Inc. (“Brookfield”) has an approximate 30% interest in Brookfield Infrastructure. Brookfield Infrastructure has appointed Brookfield as its Manager to provide certain management, administrative and advisory services, for a fee, under the Master Services Agreement.


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BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

          As of  

US$ MILLIONS, UNAUDITED

   Notes          March 31, 2014      December 31, 2013  

Assets

        

Cash and cash equivalents

   4    $ 363       $ 538   

Financial assets

   4      406         362   

Accounts receivable and other

   4      347         346   

Inventory

        25         22   
     

 

 

    

 

 

 

Current assets

        1,141         1,268   

Property, plant and equipment

   5      7,866         7,763   

Intangible assets

   6      4,034         4,006   

Investments in associates

   7      2,167         2,039   

Investment properties

        166         164   

Goodwill

        53         48   

Financial assets (non-current)

   4      130         178   

Other assets (non-current)

        89         92   

Deferred income tax assets

        109         124   
     

 

 

    

 

 

 

Total assets

      $ 15,755       $ 15,682   
     

 

 

    

 

 

 

Liabilities and Partnership capital

        

Liabilities

        

Accounts payable and other

   4    $ 516       $ 491   

Non-recourse borrowings

   4,8      128         71   

Financial liabilities

   4      86         36   
     

 

 

    

 

 

 

Current liabilities

        730         598   

Corporate borrowings

   4      363         377   

Non-recourse borrowings (non-current)

   4,8      5,706         5,719   

Financial liabilities (non-current)

   4      586         511   

Other liabilities (non-current)

        564         557   

Deferred income tax liabilities

        1,300         1,295   

Preferred shares

   4      20         20   
     

 

 

    

 

 

 

Total liabilities

        9,269         9,077   
     

 

 

    

 

 

 

Partnership capital

        

Limited partners

        3,693         3,751   

Non-controlling interest – Redeemable Partnership Units held by Brookfield

        1,385         1,408   

Non-controlling interest – in operating subsidiaries

        1,381         1,419   

General partner

        27         27   
     

 

 

    

 

 

 

Total partnership capital

        6,486         6,605   
     

 

 

    

 

 

 

Total liabilities and partnership capital

      $ 15,755       $ 15,682   
     

 

 

    

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATING RESULTS

 

            For the three month period ended March 31  

US$ MILLIONS, UNAUDITED

  Notes        2014     2013  

Revenues

      $ 480      $ 463   

Direct operating costs

        (212     (222

General and administrative expenses

        (27     (28

Depreciation and amortization expense

  5,6       (91     (86
     

 

 

   

 

 

 
        150        127   

Interest expense

        (87     (87

Share of earnings from investments in associates

  7       12        17   

Mark-to-market on hedging items

  4       (16     (62

Other expenses

        (3     (37
     

 

 

   

 

 

 

Income (loss) before income tax

        56        (42

Income tax (expense) recovery

     

Current

        (6     (6

Deferred

        (6     26   
     

 

 

   

 

 

 

Net income (loss) from continuing operations

        44        (22

Income from discontinued operations, net of income tax

  3       —          21   
     

 

 

   

 

 

 

Net income (loss)

      $ 44      $ (1
     

 

 

   

 

 

 

Attributable to:

       

Limited partners

      $ 15      $ (25

Non-controlling interest attributable to:

       

Redeemable Partnership Units held by Brookfield

        6        (10

Interest of others in operating subsidiaries

        12        27   

General partner

        11        7   
     

 

 

   

 

 

 

Basic and diluted earnings (loss) per limited partner unit

      $ 0.10      $ (0.17
     

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)

 

               For the three month period ended March 31  

US$ MILLIONS, UNAUDITED

   Notes         2014     2013  

Net income (loss)

         $ 44      $ (1

Other comprehensive income (loss):

  

Items that will not be reclassified subsequently to profit or loss:

  

Unrealized actuarial losses

           —          (8

Taxes on the above items

           —          2   

Equity accounted investments

   7         —          (4
        

 

 

   

 

 

 
           —          (10
        

 

 

   

 

 

 

Items that may be reclassified subsequently to profit or loss:

  

Foreign currency translation

           —          (66

Cash flow hedges

   4         4        27   

Net investment hedges

   4         (37     13   

Available-for-sale securities

           11        —     

Taxes on the above items

           (3     (5

Equity accounted investments

   7         (1     (2
        

 

 

   

 

 

 
           (26     (33
        

 

 

   

 

 

 

Total other comprehensive loss

           (26     (43
        

 

 

   

 

 

 

Comprehensive income (loss)

         $ 18      $ (44
        

 

 

   

 

 

 

Attributable to:

          

Limited partners

   3       $ 13      $ (43

Non-controlling interest attributable to:

          

Redeemable Partnership Units held by Brookfield

   3         5        (16

Interest of others in operating subsidiaries

   3         (11 )      8   

General partner

   3         11        7   
        

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF PARTNERSHIP CAPITAL

 

    Limited Partners     General Partner     Non-Controlling Interest—Redeemable
Partnership Units held by Brookfield
             

THREE MONTH PERIOD

ENDED MARCH 31, 2014

US$ MILLIONS, UNAUDITED

  Limited
partners’
capital
    Deficit     Ownership
changes
    Accumulated
other
comprehensive
income(1)
    Limited
partners
    General
Partner
Capital
    Retained
earnings
    Accumulated
other
comprehensive
income(1)
    General
partner
    Redeemable
Partnership
Units held
by Brookfield
    Deficit     Ownership
changes
    Accumulated
other
comprehensive
income(1)
    Non-Controlling
Interest—
Redeemable
Partnership
Units held
by Brookfield
    Non-controlling
interest of
others in
operating
subsidiaries
    Total
partnership
capital
 

Balance as at January 1, 2014

  $ 3,199      $ (213   $ 77      $ 688      $ 3,751      $ 19      $ 2      $ 6      $ 27      $ 1,178      $ (95   $ 30      $ 295      $ 1,408      $ 1,419      $ 6,605   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    —          15        —          —          15        —          11        —          11        —          6        —          —          6        12        44   

Other comprehensive loss

    —          —          —          (2     (2     —          —          —          —          —          —          —          (1     (1     (23     (26
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

    —          15        —          (2     13        —          11        —          11        —          6        —          (1     5        (11     18   

Unit issuance

    2        —          —          —          2        —          —          —          —          —          —          —          —          —          —          2   

Partnership distributions

    —          (73     —          —          (73     —          (11     —          (11     —          (28     —          —          (28     —          (112

Subsidiary distributions to non-controlling interest

    —                 —          —          —          —          —          —          —          —          —                 —          —          —          —          (27     (27
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at March 31, 2014

  $ 3,201      $ (271   $ 77      $ 686      $ 3,693      $ 19      $ 2      $ 6      $ 27      $ 1,178      $ (117   $ 30      $ 294      $ 1,385      $ 1,381      $ 6,486   

 

(1) Refer to note 13 for an analysis of accumulated other comprehensive income by item.

 

    Limited Partners     General Partner     Non-Controlling Interest—Redeemable
Partnership Units held by Brookfield
             

THREE MONTH PERIOD

ENDED MARCH 31, 2013

US$ MILLIONS, UNAUDITED

  Limited
partners’
capital
    Retained
earnings
(deficit)
    Ownership
changes
    Accumulated
other
comprehensive
income(1)
    Limited
partners
    General
Partner
Capital
    Retained
earnings
    Accumulated
other
comprehensive
income(1)
    General
partner
    Redeemable
Partnership
Units held
by Brookfield
    Retained
Earnings
(deficit)
    Ownership
changes
    Accumulated
other
comprehensive
income(1)
    Non-Controlling
Interest—
Redeemable
Partnership
Units held
by Brookfield
    Non-controlling
interest of
others in
operating
subsidiaries
    Total
partnership
capital
 

Balance as at January 1, 2013

  $ 2,955      $ 48      $ —        $ 629      $ 3,632      $ 19      $ 3      $ 5      $ 27      $ 1,084      $ 9      $ —        $ 272      $ 1,365      $ 2,784      $ 7,808   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    —          (25     —          —          (25     —          7        —          7        —          (10     —          —          (10     27        (1

Other comprehensive loss

    —          —          —          (18     (18     —          —          —          —          —          —          —          (6     (6     (19     (43
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

    —          (25     —          (18     (43     —          7        —          7        —          (10     —          (6     (16     8        (44

Unit issuance

    2        —          —          —          2        —          —          —          —          —          —          —          —          —          —          2   

Partnership distributions

    —          (62     —          —          (62     —          (8     —          (8     —          (24     —          —          (24     —          (94

Acquisition of interests

    —          —          —          —          —          —          —          —          —          —          —          —          —          —          129        129   

Subsidiary distributions to non-controlling interest

    —          —          —          —          —          —          —          —          —          —          —          —          —          —          (21     (21

Ownership changes

    —          —          76        —          76        —          —          —          —          —          —          30        —          30        —          106   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at March 31, 2013

  $ 2,957      $ (39   $ 76      $ 611      $ 3,605      $ 19      $ 2      $ 5      $ 26      $ 1,084      $ (25   $ 30      $ 266      $ 1,355      $ 2,900      $ 7,886   

 

(1) Refer to note 13 for an analysis of accumulated other comprehensive income by item.

The accompanying notes are an integral part of these financial statements.

 

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BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

 

                             
          For the three month period ended
March 31
 

US$ MILLIONS, UNAUDITED

   Notes    2014     2013  

Operating Activities

       

Net income (loss)

      $ 44      $ (1

Adjusted for the following items:

       

Earnings from investments in associates, net of distributions received

   7      (11     (11

Fair value adjustments

        —          16   

Depreciation and amortization expense

   5,6      91        86   

Mark-to-market on hedging items

        16        62   

Provisions and other items

        12        44   

Deferred tax expense (recovery)

        6        (24

Changes in non-cash working capital, net

        (18     (25
     

 

 

   

 

 

 

Cash from operating activities

        140        147   
     

 

 

   

 

 

 

Investing Activities

       

Acquisition of subsidiaries, net of cash acquired

        —          (13

Additions of investments in associates

   7      (39     (4

Purchase of long lived assets

   5,6      (109     (103

Purchase of financial assets

        (50     —     

Net settlement of foreign exchange hedging items

        (8     7   
     

 

 

   

 

 

 

Cash used by investing activities

        (206     (113
     

 

 

   

 

 

 

Financing Activities

       

Distributions to general partner

   12      (11     (8

Distributions to other unitholders

   12      (101     (86

Subsidiary distributions to non-controlling interest

        (27     (21

Proceeds from corporate credit facility

        —          317   

Repayment of corporate credit facility

        —          (539

Proceeds on subsidiary borrowings

   8      42        1,269   

Repayments on subsidiary borrowings

   8      (22     (946

Partnership units issued (inclusive of dividend reinvestment plan)

   11      2        2   
     

 

 

   

 

 

 

Cash from financing activities

        (117     (12
     

 

 

   

 

 

 

Cash and cash equivalents

       

Change during the period

        (183     22   

Impact of foreign exchange on cash

        8        1   

Balance, beginning of year

        538        263   
     

 

 

   

 

 

 

Balance, end of period

      $ 363      $ 286   
     

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

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NOTES TO UNAUDITED INTERIM CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2014 AND DECEMBER 31, 2013 AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2014 AND 2013

1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS

Brookfield Infrastructure Partners L.P. (the “partnership”) owns and operates utility, transport and energy businesses in North and South America, Australasia and Europe. The partnership was formed as a limited partnership established under the laws of Bermuda, pursuant to a limited partnership agreement dated May 17, 2007, as amended and restated. The managing general partner of the partnership is a subsidiary of Brookfield. The partnership’s limited partnership units are listed on the New York Stock Exchange and the Toronto Stock Exchange under the symbols ‘‘BIP’’ and ‘‘BIP.UN’’, respectively. The registered office is 73 Front Street, Hamilton, HM12, Bermuda.

2. SUMMARY OF ACCOUNTING POLICIES

a) Statement of Compliance

These interim condensed and consolidated financial statements of the partnership and its subsidiaries (together “Brookfield Infrastructure”) have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”) and using the accounting policies Brookfield Infrastructure applied in its consolidated financial statements as of and for the year ended December 31, 2013, except for the adoption of Standards and amendments effective January 1, 2014 in Note 2 b). The accounting policies the partnership applied in its annual consolidated financial statements as of and for the year ended December 31, 2013 are disclosed in Note 3 of such financial statements, with which reference should be made in reading these interim condensed and consolidated financial statements.

These interim condensed and consolidated financial statements were authorized for issuance by the Board of Directors of the partnership on May 14, 2014.

b) Recently Adopted Accounting Standards and Amendments

Brookfield Infrastructure applied, for the first time, certain Standards and amendments to Standards applicable to Brookfield Infrastructure that became effective January 1, 2014. The impact of adopting these Standards on the partnership’s accounting policies and disclosures are as follows:

IFRIC 21, Levies (“IFRIC 21”) provides guidance on when to recognize a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, and those where the timing and amount of the levy is certain. IFRIC 21 identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation. A liability is recognized progressively if the obligating event occurs over a period of time or, if an obligation is triggered on reaching a minimum threshold, the liability is recognized when that minimum threshold is reached. IFRIC 21 was applied retrospectively and the application of this new standard had no impact on Brookfield Infrastructure’s accounting for levies for the current and prior periods presented.

IAS 32, Financial Instruments: Presentation (“IAS 32”) was amended to clarify certain aspects as a result of the application of offsetting requirements, namely focusing on the following four main areas: the interpretation of “currently has a legally enforceable right of set-off”, the application of simultaneous realization and settlement, the offsetting of collateral amounts, and the unit of account for applying the offsetting requirements. The amendments to IAS 32 were applied retrospectively and the application of these amendments had no impact on Brookfield Infrastructures accounting for or presentation of financial instruments for the current and prior periods presented.

c) Standard issued not yet adopted

IFRS 9 Financial Instruments – (“IFRS 9”)

IFRS 9, Financial Instruments (“IFRS 9”) was issued by the IASB on November 12, 2009 and will replace IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is tentatively effective for annual periods beginning on or after January 1, 2018. Brookfield Infrastructure is currently evaluating the impact of IFRS 9 on its consolidated financial statements.

 

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3. DISCONTINUED OPERATIONS

The revenues and expenses related to the U.S. and Canadian freehold timberlands, Brookfield Infrastructure’s timber segment, have been presented on the interim condensed and consolidated statements of operating results as discontinued operations as a result of the following transactions:

 

  i)

Brookfield Infrastructure sold its 30% interest in its U.S. freehold timberlands to a third party for proceeds of $467 million. This transaction closed in the third quarter of 2013;

 

  ii)

During the second quarter of 2013, Brookfield Infrastructure disposed of its 25% interest in its Canadian freehold timberlands to a third party for proceeds of $173 million.

The timber segment was reported as part of continuing operations until the second quarter of 2013 and has since been classified as discontinued operations for both the current and comparative periods presented.

Operating results of discontinued operations for the three month periods ended March 31, 2014 and 2013 are as follows:

 

     For the three month
period ended March 31
 

US$ MILLIONS

   2014      2013  

Revenues

   $ —         $ 149   

Direct operating costs

     —           (86
  

 

 

    

 

 

 
     —           63   

Interest expense

     —           (21

Fair value adjustments

     —           (16

Other expenses

     —           (3
  

 

 

    

 

 

 

Income before income tax

     —           23   

Attributable current and deferred taxes

     —           (2
  

 

 

    

 

 

 

Income from discontinued operations, net of income tax

   $ —         $ 21   
  

 

 

    

 

 

 

 

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Income (loss) attributable to unitholders for the three month periods ended March 31, 2014 and 2013 are as follows:

 

     For the three month
period ended March 31
 

US$ MILLIONS

   2014     2013  

Income (loss) from continuing operations attributable to:

    

Limited partners

   $ 15      $ (29

Non-controlling interest – Redeemable Partnership Units held by Brookfield

     6        (12

Non-controlling interest – in operating subsidiaries

     12        12   

General partner

     11        7   
  

 

 

   

 

 

 

Income from discontinued operations attributable to:

    

Limited partners

   $ —        $ 4   

Non-controlling interest – Redeemable Partnership Units held by Brookfield

     —          2   

Non-controlling interest – in operating subsidiaries

     —          15  

General partner

     —          —     
  

 

 

   

 

 

 

Basic and diluted earnings (loss) per unit attributable to:

    

Limited partners from continuing operations

   $ 0.10      $ (0.20

Limited partners from discontinued operations

            0.03   
  

 

 

   

 

 

 

Basic and diluted earnings (loss) per unit attributable to Limited partners

   $ 0 .10      $ (0.17
  

 

 

   

 

 

 
Comprehensive income (loss) attributable to unitholders for the three month periods ended March 31, 2014 and 2013 is as follows:   

Comprehensive income (loss) from continuing operations attributable to:

    

Limited partners

   $ 13      $ (46

Non-controlling interest – Redeemable Partnership Units held by Brookfield

     5        (18

Non-controlling interest – in operating subsidiaries

     (11     (5

General partner

     11        7   
  

 

 

   

 

 

 

Comprehensive income from discontinued operations attributable to:

    

Limited partners

   $ —        $ 3   

Non-controlling interest – Redeemable Partnership Units held by Brookfield

     —          2   

Non-controlling interest – in operating subsidiaries

     —          13   

General partner

     —          —     
  

 

 

   

 

 

 

Other comprehensive loss relating to the disposal group for the three month periods ended March 31, 2014 and 2013 is as follows:

  
     For the three month
period ended March 31
 

US$ MILLIONS

   2014     2013  

Cash flow hedges

   $ —        $ (3

Taxes on the above items

     —          —     
  

 

 

   

 

 

 

Total

   $ —        $ (3
  

 

 

   

 

 

 

 

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Table of Contents

The net cash flows attributable to the operating, investing and financing activities of discontinued operations for the three month periods ended March 31, 2014 and 2013 are as follows:

 

     For the three month
period ended March 31
 
     2014      2013  

Operating cash flows

   $          $ 30   

Investing cash flows

     —           (1

Financing cash flows

     —           (11
  

 

 

    

 

 

 

Net cash flows

   $          $ 18   
  

 

 

    

 

 

 

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair values are determined by reference to quoted bid or ask prices, when available. Where bid and ask prices are unavailable, the closing price of the most recent transaction of that instrument is used. In the absence of an active market, fair values are determined based on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market inputs.

Fair values determined using valuation models require the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates. In determining those assumptions, Brookfield Infrastructure looks primarily to external readily observable market inputs such as interest rate yield curves, currency rates, and price and rate volatilities as applicable. The fair value of interest rate swap hedging items which form part of financing arrangements is calculated by way of discounted cash flows using market interest rates and applicable credit spreads.

Classification of Financial Instruments

Financial instruments classified as fair value through profit or loss are carried at fair value on the Consolidated Statements of Financial Position. Changes in the fair values of financial instruments classified as fair value through profit or loss are recognized in profit and loss. Mark-to-market adjustments on hedging items for those in an effective hedging relationship and changes in the fair value of available-for-sale securities are recognized in other comprehensive income. Breakage costs relating to the refinancing of the Australian railroad operation of $37 million for the three months ended March 31, 2013 has been reclassified from mark-to-market on hedging items to other expenses on the Consolidated Statement of Operating Results to conform with current period presentation.

 

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Table of Contents

Carrying Value and Fair Value of Financial Instruments

The following table provides the allocation of financial instruments and their associated financial instrument classifications as at March 31, 2014:

 

                                           

US$ MILLIONS

Financial Instrument Classification

   FVTPL      Available-for-
sale securities
     Loans and receivables/
Other liabilities
        

MEASUREMENT BASIS

           (Fair Value)              (Fair Value
       through OCI)       
     (Amortized Cost)                    Total                 

Financial assets

           

Cash and cash equivalents

   $ —         $ —         $ 363       $ 363   

Accounts receivable and other

     —           —           347         347   

Financial assets (current and non-current)(1)

     171         —           66         237   

Marketable securities

     —           296         —           296   

Restricted cash

     —           —           3         3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 171       $ 296       $ 779       $ 1,246   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Corporate borrowings

   $ —         $ —         $ 363       $ 363   

Non-recourse borrowings (current and non-current)

     —           —           5,834         5,834   

Accounts payable and other

     —           —           516         516   

Preferred shares

     —           —           20         20   

Financial liabilities (current and non-current)(1)

     596         —           76         672   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 596       $ —         $ 6,809       $ 7,405   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Derivative instruments which are elected for hedge accounting totaling $151 million are included in financial assets and $225 million of derivative instruments are included in financial liabilities.

The following table provides the allocation of financial instruments and their associated financial instrument classifications as at December 31, 2013:

 

                                           

US$ MILLIONS

Financial Instrument Classification

   FVTPL      Available-for-
sale securities
     Loans and receivables/
Other liabilities
        

MEASUREMENT BASIS

           (Fair Value)              (Fair Value
       through OCI)       
     (Amortized Cost)                    Total                 

Financial assets

           

Cash and cash equivalents

   $ —         $ —         $ 538       $ 538   

Accounts receivable and other

     —           —           346         346   

Financial assets (current and non-current)(1)

     241         —           66         307   

Marketable securities

     —           230         —           230   

Restricted cash

     —           —           3         3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 241       $ 230       $ 953       $ 1,424   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Corporate borrowings

   $ —         $ —         $ 377       $ 377   

Non-recourse borrowings (current and non-current)

     —           —           5,790         5,790   

Accounts payable and other

     —           —           491         491   

Preferred shares

     —           —           20         20   

Financial liabilities (current and non-current)(1)

     547         —           —           547   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 547       $ —         $ 6,678       $ 7,225   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Derivative instruments which are elected for hedge accounting totaling $196 million are included in financial assets and $195 million of derivative instruments are included in financial liabilities.

 

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Table of Contents

The following table provides the carrying values and fair values of financial instruments as at March 31, 2014 and December 31, 2013:

 

     March 31, 2014      December 31, 2013  

US$ MILLIONS

   Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

Financial assets

           

Cash and cash equivalents

   $ 363       $ 363       $ 538       $ 538   

Accounts receivable and other financial assets

     347         347         346         346   

Financial assets (current and non-current)

     237         237         307         307   

Marketable securities

     296         296         230         230   

Restricted cash

     3         3         3         3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,246       $ 1,246       $ 1,424       $ 1,424   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Corporate borrowings(1)

   $ 363       $ 372       $ 377       $ 381   

Non-recourse borrowings(2)

     5,834         6,052         5,790         5,973   

Accounts payable and other financial liabilities

     516         516         491         491   

Preferred shares

     20         20         20         20   

Financial liabilities (current and non-current)

     672         672         547         547   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,405       $ 7,632       $ 7,225       $ 7,249   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Corporate borrowings is classified under level 1 of the fair value hierarchy; quoted prices in an active market are available.

(2)

Non-recourse borrowings are classified under level 2 of the fair value hierarchy with the exception of borrowings at the UK port operation and Chilean toll road which are classified under level 1. For level 2 fair values, future cash flows are estimated based on observable forward interest rates at the end of the reporting period.

Hedging Activities

Brookfield Infrastructure uses derivatives and non-derivative financial instruments to manage or maintain exposures to interest and currency risks. For certain derivatives which are used to manage exposures, Brookfield Infrastructure determines whether hedge accounting can be applied. When hedge accounting can be applied, a hedge relationship can be designated as a fair value hedge, cash flow hedge or a hedge of foreign currency exposure of a net investment in a foreign operation with a functional currency other than the U.S. dollar. To qualify for hedge accounting the derivative must be highly effective in accomplishing the objective of offsetting changes in the fair value or cash flows attributable to the hedged risk both at inception and over the life of the hedge. If it is determined that the derivative is not highly effective as a hedge, hedge accounting is discontinued prospectively.

Cash Flow Hedges

Brookfield Infrastructure uses interest rate swaps to hedge the variability in cash flows related to a variable rate asset or liability. The settlement dates typically coincide with the dates on which the interest is payable on the underlying debt, and the amount accumulated in equity is reclassified to income or loss over the period that the floating rate interest payments on debt affect income or loss. For the three months ended March 31, 2014, pre-tax net unrealized gains of $4 million (2013: gains of $27 million) were recorded in other comprehensive income (loss) for the effective portion of the cash flow hedges. As at March 31, 2014, there was a derivative liability balance of $27 million relating to hedging items designated as cash flow hedges (December 31, 2013: derivative liability balance of $31 million).

Net Investment Hedges

Brookfield Infrastructure uses foreign exchange hedging items and foreign currency denominated debt instruments to manage its foreign currency exposures arising from net investments in foreign operations having a functional currency other than the U.S. dollar. For the three months ended March 31, 2014 unrealized pre-tax net losses of $29 million, (2013: gains of $6 million) were recorded in other comprehensive income (loss) for the effective portion of hedges of net investments in foreign operations. Further, Brookfield Infrastructure recognized a $8 million loss (2013: gain of $7 million) in other comprehensive income (loss) related to the net settlement of foreign exchange hedging items in the three month period ended March 31, 2014. As at March 31, 2014, there was a derivative liability balance of $29 million relating to hedging items designated as net investment hedges (December 31, 2013: derivative asset balance of $8 million).

 

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Table of Contents

Fair Value Hierarchical Levels

Fair value hierarchical levels are directly determined by the amount of subjectivity associated with the valuation inputs of these assets and liabilities, and are as follows:

 

   

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

 

   

Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Fair valued assets and liabilities that are included in this category are primarily certain hedging items, other financial assets carried at fair value in an inactive market and redeemable fund units.

 

   

Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to determining the estimate. Fair valued assets and liabilities that are included in this category are power purchase hedging items, interest rate swap hedging items, derivative hedging items, certain equity securities carried at fair value which are not traded in an active market.

Fair value of the partnership’s financial assets and financial liabilities are measured at fair value on a recurring basis. The following table summarizes the valuation techniques and significant inputs for Brookfield Infrastructure’s financial assets and financial liabilities:

 

US$ MILLIONS

   Fair value hierarchy   March 31, 2014      Dec. 31, 2013  

Marketable securities

   Level 1(1)   $ 296       $ 230   

Foreign currency forward contracts

   Level 2(2)     

Financial asset

       30         64   

Financial liability

       51         36   

Interest rate swaps & other

   Level 2(2)     

Financial asset

     $ 141       $ 177   

Financial liability

       545         511   

 

(1) Valuation technique: Quoted bid prices in an active market.
(2)

Valuation technique: Discounted cash flow. Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the issuer’s or counterparty’s credit risk.

Assets and liabilities measured at fair value on a recurring basis include $467 million (2013: $471 million) of financial assets and $596 million (2013: $547 million) of financial liabilities which are measured at fair value using valuation inputs based on management’s best estimates. During the three months ended March 31, 2014 and 2013, no transfers were made between level 1 and 2 or level 2 and 3. The following table categorizes financial assets and liabilities, which are carried at fair value, based upon the level of input.

 

     March 31, 2014      December 31, 2013  

US$ MILLIONS

   Level 1      Level 2      Level 3      Level 1      Level 2      Level 3  

Financial assets

                 

Marketable securities

   $ 296       $ —         $ —         $ 230       $ —         $ —     

Financial assets (current and non-current) 1

     —           171         —           —           241         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

                 

Financial liabilities (current and non-current) 1

   $ —         $ 596       $ —         $ —         $ 547       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Level 1 financial assets relate to marketable securities. Level 2 financial assets and liabilities primarily relate to derivative instruments.

 

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Table of Contents

5. PROPERTY, PLANT AND EQUIPMENT

 

                                                                                                             

US$ MILLIONS

   Utility
Assets
    Transport
Assets
    Energy
Assets
    Timberland
Assets
    Total
Assets
 

Gross carrying amount:

          

Balance at January 1, 2013

   $ 3,320      $ 3,000      $ 1,082      $ 651      $ 8,053   

Additions (disposals)

     172        170        38        —          380   

Acquisitions (dispositions) through business combinations

     —          —          145        (651     (506

Fair value adjustments

     167        225        39        —          431   

Net foreign currency exchange differences

     (13     (410     (71     —          (494
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

   $ 3,646      $ 2,985      $ 1,233      $ —        $ 7,864   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     54        32        17        —          103   

Net foreign currency exchange differences

     (9     110        (17     —          84   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2014

   $ 3,691      $ 3,127      $ 1,233      $ —        $ 8,051   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation:

          

Balance at January 1, 2013

   $ (10   $ (43   $ (25   $ (5   $ (83

Depreciation expense

     (121     (111     (43     —          (275

Fair value adjustment

     102        93        32        —          227   

Disposals

     —          —          —          5        5   

Net foreign currency exchange differences

     5        17        3        —          25   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

   $ (24   $ (44   $ (33   $ —        $ (101
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation expense

     (36     (31     (12     —          (79

Net foreign exchange differences

     4        (8     (1     —          (5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2014

   $ (56   $ (83   $ (46   $ —        $ (185
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value:

          

March 31, 2014

   $ 3,635      $ 3,044      $ 1,187      $ —        $ 7,866   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2013

   $ 3,622      $ 2,941      $ 1,200      $ —        $ 7,763   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

6. INTANGIBLE ASSETS

 

                                                     

US$ MILLIONS

   For the three months
ended March 31, 2014
    For the 12 months
ended December 31, 2013
 

Cost

   $ 4,159      $ 4,117   

Accumulated amortization

     (125     (111
  

 

 

   

 

 

 

Total

   $ 4,034      $ 4,006   
  

 

 

   

 

 

 

 

Intangible assets are allocated to the following cash generating units:

 

  

     As of  

US$ MILLIONS

   March 31, 2014     December 31, 2013  

Regulated terminal

   $  2,316      $  2,231   

Chilean toll roads

     1,219        1,278   

UK port operation

     357        355   

Other (1)

     142        142   
  

 

 

   

 

 

 

Total

   $ 4,034      $ 4,006   
  

 

 

   

 

 

 

 

(1)

Other intangibles are comprised of customer order backlogs and easements and permits to use and operate on government land.

The following table presents the change in the balance of intangible assets:

 

US$ MILLIONS

   For the three months
ended March 31, 2014
 

Cost at beginning of the period

   $ 4,117   

Additions

     6   

Foreign currency translation

     36   
  

 

 

 

Balance at March 31, 2014

   $ 4,159   
  

 

 

 

The following table presents the accumulated amortization for Brookfield Infrastructure’s intangible assets:

 

US$ MILLIONS

   For the three months
ended March 31, 2014
 

Accumulated amortization at beginning of period

   $ (111

Amortization

     (12

Foreign currency translation

     (2
  

 

 

 

Balance at March 31, 2014

   $ (125
  

 

 

 

 

14


Table of Contents

7. INVESTMENTS IN ASSOCIATES

The following table represents the reconciliation of movement in the partnership’s investments in associates:

 

US$ MILLIONS

  For the three month period
ended March 31, 2014
    For the 12 month period
ended December 31, 2013
 

Balance at beginning of period

  $ 2,039      $ 2,179   

Share of earnings for the period

    12         (217

Foreign currency translation

    (8     (81

Share of other reserves for the period-OCI

    (1     160   

Investments, net of disposals(1)

    126        88   

Distributions

    (1     (90
 

 

 

   

 

 

 

Ending balance

  $ 2,167      $ 2,039   
 

 

 

   

 

 

 

 

(1)

On March 26, 2014, Brookfield Infrastructure, through an arrangement formed between Brookfield and Mitsui O.S.K. Lines Ltd., acquired a 20% interest in a North American container terminal operation. Brookfield Infrastructure has significant influence through Brookfield’s position in the arrangement. Accordingly, Brookfield Infrastructure equity accounts for the entity. The purchase price is payable in a series of three equal payments, one on the date of acquisition as well as one and two years subsequent to this date. Also, an acquisition earn-out may be payable to the extent that certain earnings-based performance metrics are met. The estimated amount payable by Brookfield Infrastructure of $87 million is recorded as a financial liability within the condensed and consolidated statements of financial position.

The following table represents the carrying value of the partnership’s investments in associates:

 

                                                                                             
     As of  

US$ MILLIONS

   March 31, 2014      December 31, 2013  

Brazilian toll road operation

   $       798       $ 773   

South American transmission operation

     694            717   

Other associates

     675         549   
  

 

 

    

 

 

 
   $ 2,167       $ 2,039   
  

 

 

    

 

 

 

The following table summarizes the aggregate balances of investments in associates:

 

                                                                                                 
     As of  

US$ MILLIONS

   March 31, 2014     December 31, 2013  

Financial position:

    

Total assets

   $ 20,023      $ 19,988   

Total liabilities

     (13,016     (12,971
  

 

 

   

 

 

 

Net assets

   $ 7,007      $ 7,017   
  

 

 

   

 

 

 

 

                                                                                                 
    For the three month period ended March 31  

US$ MILLIONS

  2014     2013  

Financial performance:

   

Total revenue

  $ 717       $ 694   

Total income for the period

    46        48   

Brookfield Infrastructure’s share of associates’ net income

    12        17   
 

 

 

   

 

 

 

 

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Table of Contents

8. NON-RECOURSE BORROWINGS

 

     As of  

US$ MILLIONS

       March 31, 2014         December 31, 2013  

Current

   $ 128      $ 71   

Non-current

     5,706        5,719   
  

 

 

   

 

 

 

Total

   $ 5,834      $ 5,790   
  

 

 

   

 

 

 

During the three months ended March 31, 2014, subsidiary borrowings, net of repayments, were $20 million.

Foreign currency translation gains associated with non-recourse borrowings for the three months ended March 31, 2014 were $34 million, primarily attributable to the impact of higher exchange rates on Australian dollar denominated non-recourse borrowings.

9. SEGMENTED INFORMATION

IFRS 8, Operating Segments, requires operating segments to be determined based on internal reports that are regularly reviewed by the Executive Management and the Board of Directors for the purpose of allocating resources to the segment and to assessing its performance. Key measures used by the Chief Operating Decision Maker (‘‘CODM’’) in assessing performance and in making resource allocation decisions are funds from operations (‘‘FFO’’) and earnings before interest, tax, depreciation and amortization (‘‘Adjusted EBITDA’’), measures not defined by IFRS, which enable the determination of cash return on the equity deployed. FFO is calculated as net income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, non-cash valuation gains or losses and other items. Adjusted EBITDA is calculated as FFO excluding the impact of interest expense and other cash income (expenses), which includes cash taxes.

 

     Total attributable to Brookfield Infrastructure              

FOR THE THREE MONTHS

ENDED MARCH 31, 2014

US$ MILLIONS

   Utilities     Transport     Energy     Corporate
& Other
    Brookfield
Infrastructure
    Contribution
from
investments
in associates
    Attributable
to non-
controlling
interest
    As per IFRS
financials(1)
 

Revenues

   $ 176      $ 286      $ 91      $ —        $ 553      $ (223   $ 150      $ 480   

Costs attributed to revenues

     (50     (142     (47     —          (239     105        (78     (212

General and administrative costs

     —          —          —          (27     (27     —          —          (27
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     126        144        44        (27     287        (118     72     

Other income (expenses)

     2        (7     —          6        1        3        (1     3   

Interest expense

     (39     (42     (18     (3     (102     40        (25     (87
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

FFO

     89        95        26        (24     186        (75     46     

Depreciation and amortization

     (39     (61     (17     —          (117     51        (25     (91

Deferred taxes

     (6     7        (4     4        1        (6     (1     (6

Mark-to-market on hedging items

     2        5        —          (23     (16     —          —          (16

Other (expenses) income

     (9     (13     4        (4     (22     18        (8     (12

Share of earnings from associates

     —          —          —          —          —          12        —          12   

Income from discontinued operations, net of income tax

     —          —          —          —          —          —          —          —     

Net income attributable to non-controlling interest

     —          —          —          —          —          —          (12     (12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to partnership(2)

   $ 37      $ 33      $ 9      $ (47   $ 32      $ —        $ —        $ 32   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The above table provides each segment’s results in the format that management organizes its segments to make operating decisions and assess performance. Each segment is presented on a proportionate basis, taking into account Brookfield Infrastructure’s ownership in operations accounted for using the consolidation and equity methods under IFRS. The above table reconciles Brookfield Infrastructure’s proportionate results to the partnership’s condensed and consolidated statements of  operating results on a line by line basis by aggregating the components comprising the earnings from the partnership’s investments in associates and reflecting the portion of each line item attributable to non-controlling interests.

(2)

Includes net income (loss) attributable to non-controlling interest – Redeemable Partnership Units held by Brookfield, general partner and limited partners.

 

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Table of Contents
    Total attributable to Brookfield Infrastructure                          

FOR THE THREE MONTHS

ENDED MARCH 31, 2013

US$ MILLIONS

  Utilities     Transport     Energy     Corporate
& Other
    Brookfield
Infrastructure
    Contribution
from
investments
in associates
    Attributable
to non-
controlling
interest
    Discontinued
Operations
    As per
IFRS
financials(1)
 

Revenues

  $ 206      $ 252      $ 83      $ 38      $ 579      $ (218   $ 140      $ (38   $ 463   

Costs attributed to revenues

    (73     (145     (45     (20     (283     115        (74     20        (222

General and administrative costs

    —          —          —          (28     (28     —          —          —          (28
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

    133        107        38        (10     268        (103     66        (18  

Other income (expenses)

    2        (4     1        —          (1     2        (4     —          (3

Interest expense

    (43     (36     (17     (11     (107     39        (25     6        (87
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

FFO

    92        67        22        (21     160        (62     37        (12  

Depreciation and amortization

    (42     (51     (17     —          (110     46        (22     —          (86

Deferred taxes

    1        18        6        (2     23        (3     6        —          26   

Mark-to-market on hedging items

    (43     —          —          (2     (45     (6     (11     —          (62

Other (expenses) income

    (13     (35     (2     (6     (56     8        2        6        (40

Share of earnings from associates

    —          —          —          —          —          17        —          —          17   

Income from discontinued operations, net of income tax

    —          —          —          —          —          —          —          21        21   

Net income attributable to non-controlling interest

    —          —          —          —          —          —          (12     (15     (27
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to partnership(2)

  $ (5   $ (1   $ 9      $ (31   $ (28   $ —        $ —        $ —        $ (28
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The above table provides each segment’s results in the format that management organizes its segments to make operating decisions and assess performance. Each segment is presented on a proportionate basis, taking into account Brookfield Infrastructure’s ownership in operations accounted for using the consolidation and equity methods under IFRS. The above table reconciles Brookfield Infrastructure’s proportionate results to the partnership’s condensed and consolidated statements of  operating results on a line by line basis by aggregating the components comprising the earnings from the partnership’s investments in associates and reflecting the portion of each line item attributable to non-controlling interests.

(2)

Includes net (loss) income attributable to non-controlling interest – Redeemable Partnership Units held by Brookfield, general partner and limited partners.

 

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Table of Contents

Segment assets

For the purpose of monitoring segment performance and allocating resources between segments, Brookfield Infrastructure’s Executive Management and Board of Directors monitor the assets, including investments accounted for using the equity method, attributable to each segment.

The following is an analysis of Brookfield Infrastructure’s assets by operating segment for the periods under review:

 

                                                                                                                                      
     Total attributable to Brookfield Infrastructure  

AS AT MARCH 31, 2014

US$ MILLIONS

   Utilities      Transport      Energy      Corporate
& Other
    Brookfield
Infrastructure
     Contribution
from
investments
in associates
    Attributable
to non-
controlling
interest
     Working
capital
adjustment
     As per
IFRS
financials(1)
 

Total assets

   $  4,920       $  4,887       $  1,637       $  (117)      $  11,327       $  (2,035)      $  3,864       $  2,599       $  15,755   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 
     Total attributable to Brookfield Infrastructure  

AS AT DECEMBER 31, 2013

US$ MILLIONS

   Utilities      Transport      Energy      Corporate
& Other
    Brookfield
Infrastructure
     Contribution
from
investments
in associates
    Attributable
to non-
controlling
interest
     Working
capital
adjustment
     As per
IFRS
financials(1)
 

Total assets

   $ 4,766       $ 4,789       $ 1,629       $ (46   $ 11,138       $ (2,156   $ 3,899       $ 2,801       $ 15,682   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

(1)

The above tables provide each segment’s assets in the format that management organizes its segments to make operating decisions and assess performance. Each segment is presented on a proportionate basis, taking into account Brookfield Infrastructure’s ownership in operations using consolidation and the equity method whereby the partnership either controls or exercises significant influence over the investment respectively. The above table reconciles Brookfield Infrastructure’s proportionate assets to total assets presented on the partnership’s consolidated statements of financial position by removing net liabilities contained within investments in associates and reflecting the assets attributable to non-controlling interests, and adjusting for working capital assets which are netted against working capital liabilities.

 

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Table of Contents

10. SUBSIDIARY PUBLIC ISSUERS

In June 2012, wholly-owned subsidiaries of Brookfield Infrastructure, Brookfield Infrastructure Finance ULC, Brookfield Infrastructure Finance LLC, Brookfield Infrastructure Finance Pty Ltd, Brookfield Infrastructure Finance Limited, and Brookfield Infrastructure Preferred Equity Inc. (collectively, the ‘‘Issuers’’), registered with securities commissions for the distribution of debt securities or Class A preference shares. The Issuers may offer and sell these instruments in one or more issuances in the aggregate, of up to C$750 million (or the equivalent in other currencies). The outstanding debt securities are unconditionally guaranteed by Brookfield Infrastructure Partners L.P., Brookfield Infrastructure L.P., and wholly-owned subsidiaries, Brookfield Infrastructure Holdings (Canada) Inc., Brookfield Infrastructure US Holdings I Corporation, Brookfield Infrastructure LLC and BIP Bermuda Holdings I Limited.

The following debt securities were issued as of March 31, 2014:

On October 10, 2012, wholly-owned subsidiaries of Brookfield Infrastructure executed a C$400 million, five-year medium term note offering in the Canadian bond market with a coupon of 3.5%, which was swapped into U.S. dollars on a matched maturity basis at an all-in rate of 2.7%. The following tables set forth consolidated summary financial information for Brookfield Infrastructure and the Issuers:

 

FOR THE THREE MONTHS ENDED MARCH 31, 2014

   Brookfield
Infrastructure(2)
    The Issuers     Subsidiaries of the
partnership other
than the Issuers(3)
     Consolidating
adjustments(4)
    Brookfield
Infrastructure
consolidated
 

Revenue

   $  —        $  —        $ 480       $  —        $ 480   

Net income (loss) attributable to partnership(1)

     15        —          66         (49     32   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

FOR THE THREE MONTHS ENDED MARCH 31, 2013

                               

Revenue

   $  —        $  —        $ 463       $  —        $ 463   

Net (loss) income from continuing operations attributable to partnership(1)

     (34     —          174         (174     (34

Net (loss) income attributable to partnership(1)

     (28     —          175         (175     (28
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

AS AT MARCH 31, 2014

                               

Current assets

   $  —        $ 6      $ 1,141       $ (6   $ 1,141   

Non-current assets

     3,653        360        14,614         (4,013     14,614   

Current liabilities

     —          (9     730         9        730   

Non-current liabilities

     —          (369     11,206         (2,298     8,539   

Non-controlling interests – Redeemable Partnership Units held by Brookfield

     —          —          1,385         —          1,385   

Non-controlling interests – in operating subsidiaries

     —          —          1,381         —          1,381   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

AS AT DECEMBER 31, 2013

                               

Current assets

   $ —        $ 3      $ 1,268       $ (3   $ 1,268   

Non-current assets

     3,711        377        14,414         (4,088     14,414   

Current liabilities

     —          (3     598         3        598   

Non-current liabilities

     —          (377     11,146         (2,288     8,479   

Non-controlling interest – Redeemable Partnership Units held by Brookfield

     —          —          1,408         —          1,408   

Non-controlling interests – in operating subsidiaries

     —          —          1,419         —          1,419   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

Includes net income (loss) income attributable to non-controlling interest – Redeemable Partnership Units held by Brookfield, general partner and limited partners.

(2)

Includes investments in all subsidiaries of the partnership under the equity method.

(3)

Includes investments in all subsidiaries of the partnership other than the Issuers on a consolidated basis.

(4)

Includes elimination of intercompany transactions and balances necessary to present Brookfield Infrastructure on a consolidated basis.

 

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Table of Contents

11. PARTNERSHIP CAPITAL

Brookfield Infrastructure’s capital structure is comprised of three classes of partnership units: general partnership units, limited partnership units and Redeemable Partnership Units held by Brookfield.

In March 2014 Brookfield Infrastructure’s holding entity Brookfield Infrastructure LP (the “Holding LP”) underwent a restructuring whereby the Holding LP’s limited partnership agreement was amended to make the partnership the managing general partner of the Holding LP by redesignating the limited partner units as managing general partner units and to make the general partner a special limited partner of the Holding LP by redesignating the general partner units to special limited partner units. This change was made in order to simplify our governance structure and to more clearly delineate the partnership’s governance rights in respect of the Holding LP.

(a) General and Limited Partnership Capital

 

     General partnership units      Limited partnership units      Total  

UNITS MILLIONS

   For the three
months ended
March 31, 2014
     For the 12
months ended
December 31, 2013
     For the three
months ended
March 31, 2014
     For the 12
months ended
December 31, 2013
     For the three
months ended
March 31, 2014
     For the 12
months ended
December 31, 2013
 

Authorized to issue

           

Opening balance

     1.1         1.1         150.2         143.6         151.3         144.7   

Issued for cash

     —           —           0.1         6.6         0.1         6.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

     1.1         1.1         150.3         150.2         151.4         151.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     General Partnership Units      Limited Partnership Units      Total  

US$ MILLIONS

   For the three
months ended
March 31, 2014
     For the 12
months ended
December 31, 2013
     For the three
months ended
March 31, 2014
     For the 12
months ended
December 31, 2013
     For the three
months ended
March 31, 2014
     For the 12
months ended
December 31, 2013
 

Opening balance

   $ 19       $ 19       $ 3,199       $ 2,955       $ 3,218       $ 2,974   

Share issuance

     —           —           2         244         2         244   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 19       $ 19       $ 3,201       $ 3,199       $ 3,220       $ 3,218   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

In June 2010, we implemented a distribution reinvestment plan (“the Plan”) that allows eligible holders of the partnership to purchase additional units by reinvesting their cash distributions. Under the Plan, units are acquired at a price per unit calculated by reference to the volume weighted average of the trading price for our units on the New York Stock Exchange for the five trading days immediately preceding the relevant distribution date. During the three-month period ended March 31, 2014, the partnership issued less than 1 million units for proceeds of $2 million (2013: less than 1 million units for proceeds of $2 million) under the Plan.

The weighted average number of general partnership units outstanding for the three months ended March 31, 2014 was 1.1 million (2013: 1.1 million). The weighted average number of limited partnership units outstanding for the three months ended March 31, 2014 was 150.3 million, (2013: 150.2 million).

 

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Table of Contents

(b) Non-controlling interest – Redeemable Partnership Units held by Brookfield

 

     Non-controlling
interest—Redeemable
Partnership Units held by Brookfield
 

UNITS MILLIONS

   For the three
months ended
March 31, 2014
     For the 12
months ended
December 31, 2013
 

Opening balance

     58.7         56.1   

Issued for cash

     —           2.6   
  

 

 

    

 

 

 

Ending balance

     58.7         58.7   
  

 

 

    

 

 

 
     Non-controlling
interest—Redeemable
Partnership Units held by Brookfield
 

US$ MILLIONS

   For the three
months ended
March 31, 2014
     For the 12
months ended
December 31, 2013
 

Opening balance

   $ 1,178       $ 1,084   

Issued for cash

     —           94   
  

 

 

    

 

 

 

Ending balance

   $ 1,178       $ 1,178   
  

 

 

    

 

 

 

The weighted average number of Redeemable Partnership Units held by Brookfield outstanding for the three months ended March 31, 2014 was 58.7 million, (2013: 58.7 million).

12. DISTRIBUTIONS

For the three months ended March 31, 2014, distributions to partnership unitholders were $101 million or $0.48, per partnership unit (2013: $86 million or $0.43 per unit, for the three months ended March 31, 2013).

Additionally, incentive distributions were made to an affiliate of Brookfield, in its capacity as the special limited partner of the Holding LP, in the amount of $11 million for the three months ended March 31, 2014 ($8 million for the three months ended March 31, 2013).

13. ACCUMULATED OTHER COMPREHENSIVE INCOME

(a) Attributable to Limited Partners

 

US$ MILLIONS

  Revaluation
Surplus
    Foreign
Currency
Translation
    Net
Investment
Hedges
    Cash Flow
Hedges
    Available
for Sale
    Unrealized
Actuarial
losses
    Equity
Accounted
Investments
    Accumulated
Other
Comprehensive
Income
 

Balance at January 1, 2014

  $ 652      $ (94   $ (65   $ (63   $ 10      $ (6   $ 254      $ 688   

Other comprehensive income (loss)

    —          16        (26     1        8        —          (1     (2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2014

  $ 652      $ (78   $ (91   $ (62   $ 18      $ (6   $ 253      $ 686   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

US$ MILLIONS

  Revaluation
Surplus
    Foreign
Currency
Translation
    Net
Investment
Hedges
    Cash Flow
Hedges
    Available
for Sale
Securities
    Unrealized
Actuarial
losses
    Equity
Accounted
Investments
    Accumulated
Other
Comprehensive
Income
 

Balance at January 1, 2013

  $ 398      $ 142      $ (57   $ (53   $ —        $ (1   $ 200      $ 629   

Other comprehensive (loss) income

    (8     (25     9        14        —          (4     (4     (18
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2013

  $ 390      $ 117      $ (48   $ (39   $ —        $ (5   $ 196      $ 611   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

(b) Attributable to General Partner

 

US$ MILLIONS

   Revaluation
Surplus
     Foreign
Currency
Translation
     Net
Investment
Hedges
     Cash Flow
Hedges
    Available
for Sale
Securities
     Unrealized
Actuarial
losses
     Equity
Accounted
Investments
     Accumulated
Other
Comprehensive
Income
 

Balance at January 1, 2014

   $ 5       $ —         $ —         $ (1   $ —         $ —         $ 2       $ 6   

Other comprehensive income

     —           —           —           —          —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2014

   $ 5       $ —         $ —         $ (1   $ —         $ —         $ 2       $ 6   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

US$ MILLIONS

   Revaluation
Surplus
     Foreign
Currency
Translation
     Net
Investment
Hedges
     Cash Flow
Hedges
    Available
for Sale
Securities
     Unrealized
Actuarial
losses
     Equity
Accounted
Investments
     Accumulated
Other
Comprehensive
Income
 

Balance at January 1, 2013

   $ 3       $ 1       $ —         $ (1   $ —         $ —         $ 2       $ 5   

Other comprehensive income

     —           —           —           —          —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2013

   $ 3       $ 1       $ —         $ (1   $ —         $ —         $ 2       $ 5   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

(c) Attributable to Non-controlling interest – Redeemable Partnership Units held by Brookfield

 

US$ MILLIONS

   Revaluation
Surplus
     Foreign
Currency
Translation
    Net
Investment
Hedges
    Cash Flow
Hedges
    Available
for Sale
Securities
     Unrealized
Actuarial
losses
    Equity
Accounted
Investments
     Accumulated
Other
Comprehensive
Income
 

Balance at January 1, 2014

   $ 272       $ (30   $ (27   $ (28   $ 4       $ (2   $ 106       $ 295   

Other comprehensive income (loss)

     —           6        (10     1        3         (1     —           (1
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Balance at March 31, 2014

     272       $ (24   $ (37   $ (27   $ 7       $ (3   $ 106       $ 294   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

US$ MILLIONS

   Revaluation
Surplus
    Foreign
Currency
Translation
    Net
Investment
Hedges
    Cash Flow
Hedges
    Available
for Sale
Securities
     Unrealized
Actuarial
losses
    Equity
Accounted
Investments
    Accumulated
Other
Comprehensive
Income
 

Balance at January 1, 2013

   $ 171      $ 62      $ (24   $ (24   $ —         $ —        $ 87      $ 272   

Other comprehensive (loss) income

     (3     (9     4        6        —           (2     (2     (6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2013

   $ 168      $ 53      $ (20   $ (18   $ —         $ (2   $ 85      $ 266   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

14. RELATED PARTY TRANSACTIONS

In the normal course of operations, Brookfield Infrastructure entered into the transactions below with related parties on market terms. These transactions have been measured at fair value and are recognized on the interim condensed and consolidated financial statements.

The immediate parent of Brookfield Infrastructure is the managing general partner of the partnership. The ultimate parent of Brookfield Infrastructure is Brookfield. Other related parties of Brookfield Infrastructure represent its subsidiary and operating entities.

a) Transactions with the immediate parent

Throughout the period, the managing general partner, in its capacity as the partnership’s general partner, incurs director fees, a portion of which are charged at cost to the partnership in accordance with the limited partnership agreement. Less than $1 million in director fees were incurred during the three months ended March 31, 2014 (less than $1 million during the three months ended March 31, 2013).

 

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b) Transactions with other related parties

Since inception, Brookfield Infrastructure had a management agreement with its external managers, wholly owned subsidiaries of Brookfield.

Pursuant to the Master Services Agreement, on a quarterly basis, Brookfield Infrastructure pays a Base Management Fee, (the “Base Management Fee”,) to affiliates of Brookfield (the “Manager”) equal to 0.3125% per quarter (1.25% annually) of the market value of the partnership. The Base Management Fee was $25 million for the three months ended March 31, 2014 ($26 million during the three months ended March 31, 2013).

For purposes of calculating the Base Management Fee, the market value of the partnership is equal to the volume weighted average of the closing prices of the partnership’s units on the NYSE (or other exchange or market where the partnership’s units are principally traded) for each of the last five trading days of the applicable quarter multiplied by the number of issued and outstanding units of the partnership on the last of those days (assuming full conversion of Brookfield’s interest in Brookfield Infrastructure into units of the partnership), plus the amount of third-party debt, net of cash, with recourse to the partnership and the Holding LP and certain holding entities held directly by the Holding LP.

During the three months ended March 31, 2014, $2 million was reimbursed at cost to our Manager of the partnership ($2 million and during the three months ended March 31, 2013). These amounts represent third party costs that were paid for by Brookfield on behalf of Brookfield Infrastructure relating to general and administrative expenses, and acquisition related expenses of Brookfield Infrastructure. These expenses were charged to Brookfield Infrastructure at cost.

Brookfield Infrastructure has placed funds on deposit with Brookfield. Interest earned on the deposits is at market terms. At March 31, 2014, Brookfield Infrastructure’s deposit balance with Brookfield was $90 million (December 31, 2013: $262 million) and earned interest of less than $1 million for the three months ended March 31, 2014 ($nil during the three months ended March 31, 2013).

Brookfield Infrastructure’s North American district energy operation has various right-of-way easements and leases office space on market terms with subsidiaries of Brookfield Office Properties Inc. The North American district energy operation also utilizes consulting and engineering services provided by wholly-owned subsidiaries of Brookfield on market terms.

15. SUBSEQUENT EVENTS

(a) Acquisition of district energy businesses

Subsequent to period end, Brookfield signed definitive agreements to acquire a 100% stake in two district energy businesses located in Chicago and Seattle, of which Brookfield Infrastructure will acquire a 40% interest through a Brookfield sponsored infrastructure fund for $50 million. Concurrently, Brookfield Infrastructure will enter into a voting arrangement with an affiliate of Brookfield, providing Brookfield Infrastructure with the right to elect the Board of Directors of these entities, thereby providing Brookfield Infrastructure with control. Accordingly, Brookfield Infrastructure will consolidate these entities. Completion of these transactions is expected to occur in the second quarter of 2014, subject to customary closing conditions.

(b) U.K. regulated distribution and Australian railroad refinancing

Subsequent to period end, the UK regulated distribution operation and Australian railroad operation priced a £100 million refinancing with a 15 year term and A$520 million refinancing with a 10 year term, respectively. These financings are expected to close in the second and third quarters of 2014, respectively, and are subject to customary closing conditions.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE QUARTER ENDED MARCH 31, 2014

INTRODUCTION

The following Management’s Discussion and Analysis (“MD&A”) is the responsibility of management of Brookfield Infrastructure Partners L.P. (the “partnership” collectively with its subsidiary and operating entities “Brookfield Infrastructure”). This MD&A is dated May 14, 2014 and has been approved by the Board of Directors of the general partner of the partnership for issuance as of that date. The Board of Directors carries out its responsibility for review of this document principally through its audit committee, comprised exclusively of independent directors. The audit committee reviews and, prior to its publication, approves this document, pursuant to the authority delegated to it by the Board of Directors. The terms “Brookfield Infrastructure”, the “partnership”, “we”, “us” and “our” refer to Brookfield Infrastructure Partners L.P., and the partnership’s direct and indirect subsidiaries as a group. This MD&A should be read in conjunction with Brookfield Infrastructure Partners L.P.’s most recently issued annual and interim financial statements. Additional information, including Brookfield Infrastructure’s Form 20-F, is available on its website at www.brookfieldinfrastructure.com, on SEDAR’s website at www.sedar.com and on EDGAR’s website at www.sec.gov/edgar.shtml.

Business Overview

Brookfield Infrastructure owns and operates high quality, long-life assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, by virtue of barriers to entry and other characteristics, tend to appreciate in value over time. Our current operations1 consist of utility, transport and energy businesses in North and South America, Australasia and Europe. Our mission is to own and operate a globally diversified portfolio of high quality infrastructure assets that will generate sustainable and growing distributions over the long term for our unitholders. To accomplish this objective, we will seek to leverage our operating platforms to acquire infrastructure assets and actively manage them to extract additional value following our initial investment. An integral part of our strategy is to participate with institutional investors in Brookfield Asset Management Inc. (“Brookfield”) sponsored partnerships that target acquisitions that suit our profile. We will focus on partnerships in which Brookfield has sufficient influence or control to deploy an operations-oriented approach.

Performance Targets and Key Measures

We target a total return of 12% to 15% per annum on the infrastructure assets that we own, measured over the long term. We intend to generate this return from the in-place cash flow from our operations plus growth through investments in upgrades and expansions of our asset base, as well as acquisitions. If we are successful in growing our funds from operations (‘‘FFO’’) per unit, we will be able to increase distributions to unitholders. Furthermore, the increase in our FFO per unit should result in capital appreciation. We also measure the growth of FFO per unit, which we believe is a proxy for our ability to increase distributions. In addition, we have performance measures that track key value drivers for each of our operating platforms. See ‘‘Segmented Disclosures’’ on page 28 for more detail.

Distribution Policy

Our objective is to pay a distribution that is sustainable on a long-term basis while retaining sufficient liquidity within our operations to fund recurring growth capital expenditures, debt repayments and general corporate requirements. We currently believe that a payout of 60% to 70% of our FFO is appropriate.

In light of the current strong prospects for our business, the Board of Directors of our Managing General Partner has approved a 12% increase in our quarterly distribution to 48 cents per unit starting with the distribution paid in March 2014. This increase reflects the forecasted contribution from our recently commissioned capital projects, as well as the expected cash yield on acquisitions that we closed in the past year. Since the spin-off, we have increased our quarterly distribution from 26.5 cents per unit to 48 cents, a compound annual growth rate in excess of 10%. We target 5% to 9% annual distribution growth in light of the per unit FFO growth we foresee in our operations.

Basis of Presentation

Our condensed and consolidated financial statements are prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”) and using the accounting policies Brookfield Infrastructure applied in its consolidated financial statements as of and for the year ended December 31, 2013. Our condensed and consolidated financial statements include the accounts of Brookfield Infrastructure and the entities over which it has control. Brookfield Infrastructure accounts for investments over which it exercises significant influence, but does not control, using the equity method.

 

1 

During the second quarter of 2013, we announced the sale of our interests in our timberland operations. The results of these operations are presented in the ‘Corporate and other’ segment in this document.

 

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The partnership’s equity interests include limited partnership units (“LP Units”) held by public unitholders and redeemable partnership units (“Redeemable Partnership Units”) held by Brookfield. The LP Units and the Redeemable Partnership Units have the same economic attributes in all respects, except that the Redeemable Partnership Units provide Brookfield the right to request that its units be redeemed for cash consideration. In the event that Brookfield exercises this right, the partnership has the right, at its sole discretion, to satisfy the redemption request with its LP Units, rather than cash, on a one-for-one basis. As a result, Brookfield, as holder of Redeemable Partnership Units, participates in earnings and distributions on a per unit basis equivalent to the per unit participation of the LP Units of the partnership. However, given the redeemable feature referenced above, we present the Redeemable Partnership Units as a component of non-controlling interests.

When we discuss the results of our operating platforms, we present Brookfield Infrastructure’s proportionate share of results for operations accounted for using consolidation and the equity method, in order to demonstrate the impact of key value drivers of each of these operating platforms on the partnership’s overall performance. As a result, segment revenues, costs attributable to revenues, other income, interest expense, depreciation and amortization, deferred taxes, fair value adjustments and other items will differ from results presented in accordance with IFRS as they (1) include Brookfield Infrastructure’s proportionate share of earnings from investments in associates attributable to each of the above noted items, and (2) exclude the share of earnings (loss) of consolidated investments not held by Brookfield Infrastructure apportioned to each of the above noted items. However, net income for each segment is consistent with results presented in accordance with IFRS. See “Reconciliation of Operating Segments” on page 43 for a reconciliation of segment results to the partnership’s statement of operating results in accordance with IFRS.

Our presentation currency and functional currency is the U.S. dollar, and has been throughout each of the last six years. There were no changes in accounting policies that have had a material impact on the comparability of the results between financial years since the adoption of IFRS.

OUR OPERATIONS

Brookfield Infrastructure owns a balanced portfolio of infrastructure assets that are diversified by sector and by geography. We have a stable cash flow profile with approximately 90% of our Adjusted EBITDA supported by regulated or contractual revenues. In order to assist our unitholders in evaluating our performance and assessing our value, we group our businesses into operating platforms based on similarities in their underlying economic drivers.

Our operating platforms are summarized below:

 

Operating Platform

  

Asset Type

  

Primary Location

Utilities      
Regulated or contractual businesses which earn a return on their rate base   

•      Regulated Terminal

•      Electricity Transmission

•      Regulated Distribution

  

•      Australasia

•      North & South America

•      Europe

Transport      
Provide transportation for freight, bulk commodities and passengers, for which we are paid an access fee   

•      Railroad

•      Toll Roads

•      Ports

  

•      Australasia

•      South America

•      Europe & North America

Energy      
Systems that provide energy transmission, distribution and storage services   

•      Energy Transmission, Distribution & Storage

•      District Energy

  

•      North America

•      Europe

•      Australasia

 

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REVIEW OF CONSOLIDATED FINANCIAL RESULTS

In this section we review our financial position and consolidated performance as at March 31, 2014 and December 31, 2013 and for the three month periods ended March 31, 2014 and 2013. Further details on the key drivers of our operations and financial position are contained within the Segmented Disclosures section on page 28.

 

US$ MILLIONS, EXCEPT PER UNIT INFORMATION    Three months ended March 31  

Summary Statements of Operating Results

   2014     2013  

Revenues

   $ 480      $ 463   

Direct operating expenses

     (212     (222

General and administrative expenses

     (27     (28

Depreciation and amortization expense

     (91     (86

Interest expense

     (87     (87

Mark-to-market on hedging items

     (16     (62

Earnings from investments in associates

     12        17   

Net income (loss)

     44        (1

Income (loss) from continuing operations

     44        (22

Income from discontinued operations, net of income tax

     —          21   

Net income (loss) attributable to the partnership(1)

     32        (28

Net income (loss) per limited partnership unit

   $ 0.10      $ (0.17
  

 

 

   

 

 

 

 

(1)

Includes net income (loss) attributable to non-controlling interests - Redeemable Partnership Units held by Brookfield, general partner and limited partners.

For the three months ended March 31, 2014, we reported net income of $44 million, of which $32 million is attributable to the partnership, compared to net loss of $1 million and net loss attributable to the partnership of $28 million in the prior year. Net income increased compared to the first quarter of 2013 as the prior year included breakage costs associated with our Australian railroad’s execution of a long-term financing and mark-to-market losses on hedging positions at our UK regulated distribution business.

Revenues totaled $480 million for the first quarter of 2014, representing a year-over-year increase of $17 million, or 4%. The increase is primarily attributable to organic growth initiatives completed in the last 12 months, which resulted in increased revenue of $18 million at our Australian railroad and $14 million at our UK regulated distribution operation as well as the acquisition of our U.S. district energy operation in the fourth quarter of 2013 which contributed incremental revenue of $5 million. Our business also recorded higher revenues in its transport and energy operations as a result of increased volumes that contributed an incremental $11 million to our total revenues. These increases were partially offset by a $31 million reduction in revenue resulting from negative movements in foreign exchange.

Direct operating expenses totaled $212 million for the first quarter of 2014, which represented a decrease of $10 million, or 5%, compared to the same period in 2013. This was driven by a $13 million decrease in expenses as a result of foreign exchange movements, which was partially offset by a $3 million increase in expenses from new investments and the aforementioned capital expansion programs completed over the last year.

General and administrative expenses totaled $27 million for the three months ended March 31, 2014, which was a $1 million decrease relative to the prior year comparative period. This line item is primarily comprised of the Base Management Fee that is paid to Brookfield, which is equal to 1.25% of the partnership’s market value plus recourse debt, net of cash. It also includes certain public company expenditures relating to the on-going operations of the partnership. The Base Management Fee decreased versus the same period in 2013 as a result of higher recourse debt in the comparative period as our corporate credit facility was drawn to fund new investments made in the fourth quarter of 2012. This was partially offset by an increase in market capitalization attributable to the increased trading price of the partnership units and the equity issuance completed in May 2013.

Depreciation and amortization expense totaled $91 million in the first quarter of 2014, an increase of $5 million over the first quarter of 2013. The increase was primarily due to higher property, plant and equipment values as a result of our annual revaluation process.

Earnings from investments in associates were $12 million for the three months ended March 31, 2014, representing a decline of $5 million over the first quarter of 2013. The decline was primarily attributable to the sale of our Australasian regulated distribution operation in the fourth quarter of 2013, as well as a foreign exchange loss recognized on translation of U.S denominated debt in our Chilean electricity transmission system. These items were partially offset by higher earnings at our North American gas transmission business which benefited from increased natural gas demand into the Chicago market caused by record cold weather, as well as the contribution from our additional investment in our Brazilian toll road in the prior year.

 

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US$ MILLIONS   As of  

Summary Statements of Financial Position Key Metrics

  March 31, 2014     December 31, 2013  

Cash and cash equivalents

  $ 363      $ 538   

Other current assets

    778        730   

Total assets

    15,755        15,682   

Current liabilities

    602        527   

Corporate borrowings

    363        377   

Non-recourse borrowings

    5,834        5,790   

Other long-term liabilities

    2,470        2,383   

Limited Partners’ capital

    3,693        3,751   

Non-controlling interest – Redeemable Partnership Units held by Brookfield

    1,385        1,408   

Non-controlling interest – in operating subsidiaries

    1,381        1,419   

General Partner capital

    27        27   
 

 

 

   

 

 

 

As of March 31, 2014, we had $15,755 million in assets, compared to $15,682 million at the end of 2013. This $73 million increase is primarily due to foreign currency translation gains of $186 million that resulted from the appreciation of the Australian dollar and Brazilian reais relative to the U.S. dollar. These gains were partially offset by approximately $125 million of foreign currency translation losses due to the depreciation of the Chilean peso and Canadian dollar versus the U.S. dollar during the period.

Non-recourse borrowings increased by $44 million to $5,834 million at March 31, 2014 from $5,790 million at December 31, 2013. The increase was primarily due to the impact of the appreciation of the Australian dollar relative to the U.S. dollar since year end, which led to an increase in debt balances of approximately $110 million. This was partially offset by an approximate $66 million decline in Chilean peso, Canadian dollar and Colombian peso denominated debt balances in conjunction with the depreciation of these currencies versus the U.S. dollar during the three months ended March 31, 2014.

Partnership capital decreased by $81 million to $5,105 million as of March 31, 2014 from $5,186 million at the end of 2013 as distributions paid during the period exceeded earnings.

 

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Summary of Quarterly Results

Total revenues and net income for the eight most recent quarters are as follows:

 

THREE MONTHS ENDED    2014     2013     2012  

(US$ MILLIONS, EXCEPT PER UNIT AMOUNTS)

   Q1     Q4     Q3     Q2     Q1     Q4     Q3     Q2  

Revenues

   $ 480     $ 470     $ 431     $ 462     $ 463     $ 451     $ 374     $ 368  

Direct operating costs

     (212     (212     (187     (202     (222 )     (229     (190     (187

Equity accounted income (loss)

     12       (272 )     20       18       17       (8     40       (32

Expenses

            

Interest

     (87     (98     (87     (90     (87 )     (98     (75     (75

Corporate costs

     (27     (28     (28     (26     (28 )     (28     (25     (22

Valuation items

            

Fair value changes and other

     (19     55        (33     107       (99 )     (5     14       (29

Depreciation and amortization

     (91     (79     (81     (83     (86 )     (73     (56     (53

Income tax (expense) recovery

     (12     (12 )     33       (36     20       4       6       16  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing operations

     44       (176 )     68       150       (22 )     14       88       (14

(Loss) income from discontinued operations, net of tax

     —          —          (11     35       21       166       7       7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     44       (176 )     57       185       (1     180       95       (7

Net income (loss) attributable to others

     29       (32 )     39       97       24       147       49       14  

Net income (loss) attributable to limited partners

     15       (144 )     18       88       (25 )     33       46       (21
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per limited partnership unit

   $ 0.10     $ (0.96 )   $ 0.12     $ 0.60     $ (0.17 )   $ 0.23     $ 0.33     $ (0.16
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

A significant driver of our results continues to be new investments that we execute in addition to organic expansion projects that we commission within our various businesses, which add to the ongoing earnings profile of our current businesses. These factors all contributed to the consistent increases in our revenues, operating and interest costs, as well as depreciation expense. In addition to the factors mentioned, net income is also impacted by other items that relate to fair value adjustments to our assets and financial instruments.

We do not consider the effects of seasonality to be significant to the business overall. This is primarily due to the diversification of our business from a geographic and a segment perspective.

SEGMENTED DISCLOSURES

In this section, we review the results of our principal operating segments: utilities, transport and energy. Each segment is presented on a proportionate basis, taking into account Brookfield Infrastructure’s ownership in operations accounted for using the consolidation and equity method, whereby the partnership either controls or exercises significant influence over its investments. See “Discussion of Segment Reconciling Items” on page 46 for a reconciliation of segment results to the partnership’s statement of operating results in accordance with IFRS.

Utilities Operations

Our utilities platform is comprised of regulated businesses, which earn a return on their asset base, as well as businesses with long-term contracts designed to generate a return on capital over the life of the contract. In all cases, we own and operate assets that earn a return on a regulated or notionally stipulated asset base, which we refer to as rate base. Our rate base increases in accordance with capital that we invest to upgrade and expand our systems. Depending on the jurisdiction, our rate base may also increase by inflation and maintenance capital expenditures and decrease by regulatory depreciation. The return that we earn is typically determined by a regulator or contracts for prescribed periods of time. Thereafter, it may be subject to customary reviews based upon established criteria. Due to the regulatory diversity we have within our utilities platform, we mitigate exposure to any single regulatory regime. In addition, due to the regulatory frameworks and economies of scale of our utilities businesses, we often have significant competitive advantages in competing for projects to expand our rate base. Accordingly, we expect this segment to produce stable revenue and margins that should increase with investment of additional capital and inflation. Virtually all of our utility platform’s Adjusted EBITDA is supported by regulated or contractual revenues.

Our objectives for our utilities platform are to invest capital in the expansion of our rate base and to provide safe and reliable service for our customers on a cost efficient basis. If we do so, we will be in a position to earn an appropriate return on our rate base. Our performance can be measured by the growth in our rate base, the return on our rate base, as well as our AFFO.

 

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Our utilities platform is comprised of the following:

Regulated Terminal

 

   

One of the world’s largest coal export terminals in Australia, with 85 Mtpa of capacity

Electricity Transmission

 

   

Approximately 10,500 kilometres of transmission lines in North and South America

Regulated Distribution

 

   

Approximately 2.1 million electricity and natural gas connections

Results of Operations

The following table presents our proportionate share of our rate base and selected key metrics:

 

     Three months ended March 31  

(US$ MILLIONS)

   2014     2013  

Rate base, start of period

   $ 4,242     $ 4,790  

Capital expenditures commissioned

     61       102  

Inflation and other indexation

     23       76  

Regulatory depreciation

     (15     (20

Foreign exchange

     24       (68
  

 

 

   

 

 

 

Rate base, end of period

   $ 4,335     $ 4,880  
  

 

 

   

 

 

 
     Three months ended March 31  

(US$ MILLIONS)

   2014     2013  

Funds from operations (FFO)

   $ 89     $ 92  

Maintenance capital

     (2     (6
  

 

 

   

 

 

 

Adjusted funds from operations (AFFO)

   $ 87     $ 86  
  

 

 

   

 

 

 

For the three months ended March 31, 2014, our utilities platform produced FFO of $89 million, compared with $92 million in the same period in the prior year. The decrease in FFO was primarily attributable to the sale of our Australasian regulated distribution operation in the fourth quarter of 2013. Excluding the impact of the sale, FFO increased by $6 million as the business benefited from inflation indexation and the commissioning of capital projects into rate base.

 

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The following table presents our utilities platform’s proportionate share of financial results:

 

     Three months ended March 31  

(US$ MILLIONS)

   2014     2013  

Revenue

   $ 176      $ 206  

Costs attributed to revenues

     (50     (73
  

 

 

   

 

 

 

Adjusted EBITDA

     126       133  

Interest expense

     (39     (43

Other income

     2       2  
  

 

 

   

 

 

 

Funds from operations (FFO)

     89       92  

Depreciation and amortization

     (39     (42

Deferred taxes and other items

     (13     (55
  

 

 

   

 

 

 

Net income (loss)

   $ 37     $ (5
  

 

 

   

 

 

 

The following table presents our proportionate Adjusted EBITDA and FFO for each business in this operating platform:

 

     Adjusted EBITDA      FFO  
     Three months
ended March 31
     Three months
ended March 31
 

(US$ MILLIONS)

   2014      2013      2014      2013  

Regulated Distribution

   $ 47       $ 53       $ 36       $ 40   

Regulated Terminal

     42         45         23         23   

Electricity Transmission

     37         35         30         29   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 126       $ 133       $ 89       $ 92   
  

 

 

    

 

 

    

 

 

    

 

 

 

Our regulated distribution operations generated Adjusted EBITDA and FFO of $47 million and $36 million, respectively, for the current quarter, versus $53 million and $40 million, respectively, in the comparative period. This decrease was due primarily to the sale of our Australasian regulated distribution operation in the fourth quarter of 2013. Excluding the impact of the sale, results were ahead of the prior year due primarily to improved performance at our UK regulated distribution business due to higher rate base, inflation indexation and higher connections revenue.

Our regulated terminal operation reported Adjusted EBITDA and FFO of $42 million and $23 million, respectively, for the three months ended March 31, 2014, versus $45 million and $23 million, respectively, in the comparative period. Adjusted EBITDA decreased due to negative movements in foreign exchange. In natural currency, Adjusted EBITDA and FFO were ahead of prior year as we benefited from additions to our rate base.

Our electricity transmission operations reported Adjusted EBITDA and FFO of $37 million and $30 million, respectively, for the current quarter, versus $35 million and $29 million, respectively, in the comparative period. Adjusted EBITDA and FFO increased primarily due to inflation indexation and commissioning of projects into our rate base which was partially offset by the impact of foreign exchange.

Non-cash expenses are primarily comprised of depreciation and amortization, inflation indexation on our Chilean peso denominated debt, deferred taxes and other items. Depreciation and amortization decreased to $39 million for the three months ended March 31, 2014, down from $42 million for the same period in 2013. The decrease is primarily due to the sale of the Australasian regulated distribution operation in the fourth quarter of 2013. Deferred taxes and other items for the three months ended March 31, 2014 was $13 million compared to $55 million for the same period in 2013, as the prior year results contained mark-to-market losses of $46 million on hedging positions at our UK regulated distribution business.

 

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Transport Operations

Our transport platform is comprised of open access systems that provide transportation, storage and handling services for freight, bulk commodities and passengers, for which we are paid an access fee. Profitability is based on the volume and price achieved for the provision of these services. This operating platform is comprised of businesses with price ceilings as a result of regulation, such as our railroad and toll road operations, as well as unregulated businesses, such as our ports. Transport businesses typically have high barriers to entry and, in many instances, have very few substitutes in their local markets. While these businesses have greater sensitivity to market prices and volume than our utilities platform, revenues are generally stable and, in many cases, are supported by long-term contracts or customer relationships. Our transport platform is expected to benefit from increases in demand for commodities as well as increases in the global movement of goods. Furthermore, the diversification within our transport platform mitigates the impact of fluctuations in demand from any particular sector, commodity, or customer. Approximately 80% of our transport platform’s Adjusted EBITDA is supported by long-term contractual revenues.

Our objectives for our transport platform are to provide safe and reliable service to our customers and to satisfy their growth requirements by increasing the utilization of our assets and expanding our capacity in a capital efficient manner. If we do so, we will be able to charge an appropriate price for our services and we will be able to earn an attractive return on the capital that we have deployed as well as the capital that we will invest to increase the capacity of our operations. Our performance can be measured by our revenue growth and our Adjusted EBITDA margin.

Our transport platform is comprised of the following:

Railroad

 

   

Sole provider of rail service in southwestern Western Australia with approximately 5,100 kilometres of tracks

Toll Roads

 

   

3,200 kilometres of motorways in Brazil and Chile

Ports

 

   

30 terminals primarily in North America, UK and across Europe

Results of Operations

The following table presents our proportionate share of the key metrics of our transport platform:

 

     Three months ended March 31  

(US$ MILLIONS)

   2014     2013  

Growth capital expenditures

   $     66      $     48   

Adjusted EBITDA margin1

     50     42

Funds from operations (FFO)

     95        67   

Maintenance capital

     (18     (14
  

 

 

   

 

 

 

Adjusted funds from operations (AFFO)

   $ 77      $ 53   
  

 

 

   

 

 

 

 

1. Adjusted EBITDA margin is Adjusted EBITDA divided by revenues.

In our transport platform, we generated FFO of $95 million in the first quarter of 2014 compared to $67 million in the same period of 2013. The increase in FFO was primarily driven by contributions from the additional investment in our Brazilian toll road operation in the third quarter of 2013. We also benefited from improved results from our Australian railroad due to the full contribution from the expansion program and higher volumes from a bumper grain harvest.

The following table presents our transport platform’s proportionate share of financial results:

 

     Three months ended March 31  

(US$ MILLIONS)

   2014     2013  

Revenues

   $ 286     $ 252  

Cost attributed to revenues

     (142     (145
  

 

 

   

 

 

 

Adjusted EBITDA

     144           107     

Interest expense

     (42     (36

Other expenses

     (7     (4
  

 

 

   

 

 

 

Funds from operations (FFO)

     95       67  

Depreciation and amortization

     (61     (51

Deferred taxes and other items

     (1     (17
  

 

 

   

 

 

 

Net income (loss)

   $ 33     $ (1
  

 

 

   

 

 

 

 

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The following table presents proportionate Adjusted EBITDA and FFO for each business in this operating platform:

 

     Adjusted EBITDA      FFO  
     Three months
ended March 31
     Three months 
ended March 31
 

(US$ MILLIONS)

   2014      2013      2014      2013  

Railroad

   $ 65       $ 57       $ 49       $ 42   

Toll Roads

     60         32         34         16   

Ports

     19         18         12         9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 144       $ 107       $ 95       $ 67   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three months ended March 31, 2014, our Australian railroad reported Adjusted EBITDA and FFO of $65 million and $49 million, respectively, versus $57 million and $42 million, respectively, in the comparative period. Adjusted EBITDA and FFO increased versus the prior period due to benefits of our expansion program, as volumes ramped up substantially over the past year with full take-or-pay operating levels achieved by the end of March 2013. Results also benefited from a stronger grain harvest, which contributed $3 million of incremental Adjusted EBITDA to our results.

For the three months ended March 31, 2014, our toll roads contributed Adjusted EBITDA and FFO of $60 million and $34 million, respectively, compared to Adjusted EBITDA and FFO of $32 million and $16 million, respectively, in the comparative period. This increase is primarily a result of the additional investment in our Brazilian toll roads completed in the third quarter of 2013. Adjusted for ownership interest, toll revenues increased by approximately 10% from prior year due to higher traffic volumes and regulatory tariff increases.

For the three months ended March 31, 2014, our port operations reported Adjusted EBITDA and FFO of $19 million and $12 million, respectively, compared to Adjusted EBITDA and FFO of $18 million and $9 million, respectively, in the comparative period. Adjusted EBITDA and FFO increased versus the prior year mainly due to improved volumes across our various terminals as economic conditions continue to improve in the region. FFO was also aided by the benefit of lower borrowing costs following a refinancing at our European port operations in the second quarter of 2013.

Non-cash expenses are primarily comprised of depreciation and amortization, deferred taxes and other items. Depreciation and amortization increased to $61 million for the current quarter, up from $51 million for the same period in 2013. The increase is primarily due to higher depreciation at our Brazilian toll road operation, as a result of our additional investment in our Brazilian toll road operation in the third quarter of 2013. Deferred taxes and other items were $1 million compared to $17 million for the same period in 2013. The variance is primarily attributable to a break fee relating to the refinancing of our railroad operation of $37 million, which was recorded in the comparative period.

Energy Operations

Our energy platform is comprised of systems that provide energy transportation, storage, and distribution services. Profitability is based on the volume and price achieved for the provision of these services. This operating platform is comprised of businesses that are subject to light regulation, such as our natural gas transmission business whose services are subject to price ceilings, and businesses that are essentially unregulated like our district energy business. Energy businesses typically have high barriers to entry as a result of significant fixed costs combined with economies of scale or unique positions in their local markets. Our energy platform is expected to benefit from forecasted increases in demand for energy. Although these businesses have greater sensitivity to market prices and volume than our utilities platform, revenues are typically generated under contracts with varying durations and are relatively stable. Approximately 80% of our energy platform’s Adjusted EBITDA is supported by long-term contractual revenues.

Our objectives for our energy platform are to provide safe and reliable service to our customers and to satisfy their growth requirements by increasing the utilization of our assets and expanding our capacity in a capital efficient manner. If we do so, we will be able to charge an appropriate price for our services and earn an attractive return on the capital that we have deployed as well as the capital that we will invest to increase the capacity of our operations. Our performance can be measured by our revenue growth, our Adjusted EBITDA margin and our AFFO.

Our energy platform is comprised of the following:

Energy Transmission, Distribution and Storage

 

    15,500 kilometres of natural gas transmission pipelines, located primarily in the U.S.

 

    Gas distribution to over 50,000 customers

 

    300 billion cubic feet of natural gas storage in the U.S. and Canada

 

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District Energy

 

   

Consists of heating plants capable of delivering 1,905,000 pounds per hour of steam, as well as 136,800 tons of cooling capacity, sourced from a deep lake water system

Results of Operations

The following table presents our proportionate share of the key metrics of our energy platform:

 

     Three months ended March 31  

(US$ MILLIONS)

   2014     2013  

Growth capital expenditures

   $ 11      $ 3  

Adjusted EBITDA margin1

     48     46

Funds from operations (FFO)

     26        22  

Maintenance capital

     (3     (6
  

 

 

   

 

 

 

Adjusted funds from operations (AFFO)

   $     23      $     16  
  

 

 

   

 

 

 

 

1. Adjusted EBITDA margin is Adjusted EBITDA divided by revenues.

Our energy platform generated FFO of $26 million in the first quarter of 2014 compared to $22 million in the same period of 2013. The increase in FFO was primarily driven by improved performance at our North American gas transmission business as a result of increased natural gas volume demand into the Chicago market due to record cold weather. We also benefited from improved results at our UK energy distribution operation from higher tariffs and lower costs from a margin improvement program.

The following table presents our energy platform’s proportionate share of financial results:

 

     Three months ended March 31  

(US$ MILLIONS)

   2014     2013  

Revenues

   $ 91      $   83  

Cost attributed to revenues

     (47 )          (45 )     
  

 

 

   

 

 

 

Adjusted EBITDA

     44        38  

Interest expense

     (18     (17

Other income

     —          1  
  

 

 

   

 

 

 

Funds from operations (FFO)

     26        22  

Depreciation and amortization

     (17     (17

Deferred taxes and other items

     —          4   
  

 

 

   

 

 

 

Net income

   $ 9      $ 9   
  

 

 

   

 

 

 

The following table presents proportionate Adjusted EBITDA and FFO for each business in this operating platform:

 

     Adjusted
EBITDA
     FFO  
   Three months
ended March 31
     Three months 
ended March 31
 
   2014      2013      2014      2013  

Energy Transmission, Distribution & Storage

   $ 41       $ 35       $ 24       $ 20   

District Energy

     3         3         2         2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 44       $ 38       $ 26       $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three months ended March 31, 2014, our energy transmission, distribution and storage operations reported Adjusted EBITDA and FFO of $41 million and $24 million, respectively, versus $35 million and $20 million respectively, in the comparative period. Adjusted EBITDA and FFO increased versus prior year primarily due to higher revenues driven by increased natural gas volumes into the Chicago market and higher basis spreads. These higher spreads were primarily driven by natural gas price volatility caused by an unusually long and cold winter. Our UK energy distribution operations also benefited from higher tariffs as well as lower costs associated with a margin improvement program over the past year.

Our district energy business contributed Adjusted EBITDA and FFO of $3 million and $2 million, respectively, for the first quarter of 2014, which is consistent with the prior year.

Non-cash expenses are primarily comprised of depreciation, amortization, deferred taxes and other items. Depreciation and amortization was consistent with the comparative period at $17 million.

 

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Corporate and other

The following table presents the components of corporate and other, on a proportionate basis:

 

     Three months ended March 31  

(US$ MILLIONS)

   2014     2013  

Timber EBITDA

   $ —        $ 18   

General and administrative costs

     (2     (2

Base Management Fee

     (25     (26
  

 

 

   

 

 

 

Adjusted EBITDA

     (27     (10

Other income

     6        —     

Financing costs

    

Timber

     —          (6

Corporate

     (3     (5
  

 

 

   

 

 

 

Funds from operations (FFO)

     (24     (21

Deferred taxes and other

     (23     (10
  

 

 

   

 

 

 

Net loss

   $ (47   $ (31
  

 

 

   

 

 

 

General and administrative costs for the period ended March 31, 2014 were in-line with prior year. We anticipate that our general and administrative costs, excluding the Base Management Fee, will be in the range of $8 million to $10 million per year.

Pursuant to our Master Services Agreement, we pay an annual Base Management Fee to Brookfield equal to 1.25% of our market value, plus recourse debt net of cash. The Base Management Fee for the current quarter decreased versus the prior year due to higher recourse debt in the comparative period as our corporate credit facility was drawn to fund new investments made in the fourth quarter of 2012. This was partially offset by an increase in market capitalization following the May 2013 equity issuance and a higher unit trading price.

Financing costs include interest expense and standby fees on our committed credit facility, less interest earned on cash balances. The decrease in financing costs is primarily due to lower interest costs on our corporate credit facility as we were drawn in the prior year to fund new investments that closed in the fourth quarter of 2012.

Other income includes interest and distribution income earned on corporate cash and financial assets.

Deferred taxes and other items for the period ended March 31, 2014 were $23 million, compared to $10 million in the same period in 2013, as the current period included $22 million of mark-to-market losses on derivative positions hedging foreign currency exposures.

 

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SELECTED STATEMENT OF OPERATING RESULTS AND FINANCIAL POSITION INFORMATION

To measure performance, we focus on FFO and AFFO, among other measures. We also focus on Adjusted EBITDA and net income, taking into account items that we consider unusual or otherwise not reflective of the ongoing profitability of our operations. We define FFO as net income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, non-cash valuation gains or losses and other items. We define AFFO as FFO less maintenance capex, as detailed in the Reconciliation of Non-IFRS Financial Measures section of this MD&A. FFO is a measure of operating performance, and AFFO is a measure of the sustainable cash flow of our business. Since they are not calculated in accordance with, and do not have any standardized meanings prescribed by IFRS, FFO and AFFO are unlikely to be comparable to similar measures presented by other issuers, and FFO and AFFO have limitations as analytical tools. See the Reconciliation of Non-IFRS Financial Measures section for a more fulsome discussion, including a reconciliation to the most directly comparable IFRS measures.

 

Key Metrics    Three months ended March 31  

(US$ MILLIONS, EXCEPT PER UNIT INFORMATION)

   2014     2013  

Funds from operations (FFO)

   $ 186      $ 160   

Per unit FFO1

     0.89        0.80   

Distributions

     0.48        0.43   

Payout ratio2

     60     59

Growth of per unit FFO1

     11     38

Adjusted funds from operations (AFFO)3

     163        134   
  

 

 

   

 

 

 

 

1. Calculation based on average units outstanding during the three month period ending March 31, 2014 of 210.1 million (2013: 200.8 million).
2. Payout ratio is defined as distributions paid (inclusive of general partner incentive distributions) divided by FFO.
3. AFFO is defined as FFO less maintenance capital expenditures.

We posted strong results for the quarter ended March 31, 2014 with funds from operations (“FFO”) totaling $186 million ($0.89 per unit) compared to FFO of $160 million ($0.80 per unit) in the first quarter of 2013. This 16% increase in year-over-year FFO (11% per unit) reflects steady improvements in each of our operating segments and the deployment of capital in both organic growth initiatives and new acquisitions. The payout ratio was 60%, which is at the low end of the target range of 60-70%, and we generated a solid AFFO yield of 14% during the quarter.

 

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The following tables present selected statement of operating results and financial position information by operating platform on a proportionate basis:

 

(US$ MILLIONS)    Three months ended March 31  

Statement of Operating Results

   2014     2013  

Net income (loss) by segment

    

Utilities

   $ 37      $ (5 )

Transport

     33        (1 )

Energy

     9        9  

Corporate and other

     (47     (31
  

 

 

   

 

 

 

Net income (loss)

   $ 32      $ (28
  

 

 

   

 

 

 

Adjusted EBITDA by segment

    

Utilities

   $ 126      $ 133  

Transport

     144        107  

Energy

     44        38  

Corporate and other

     (27     (10
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 287      $ 268   
  

 

 

   

 

 

 

FFO by segment

    

Utilities

   $ 89      $ 92  

Transport

     95        67  

Energy

     26        22  

Corporate and other

     (24     (21
  

 

 

   

 

 

 

FFO

   $ 186      $ 160   
  

 

 

   

 

 

 
(US$ MILLIONS)    As of  

Statement of Financial Position

   March 31, 2014     December 31, 2013  

Total assets by segment

    

Utilities

   $ 4,920     $ 4,766  

Transport

     4,887       4,789  

Energy

     1,637       1,629  

Corporate and other

     (117     (46
  

 

 

   

 

 

 

Total assets

   $ 11,327     $ 11,138  
  

 

 

   

 

 

 

Net debt by segment

    

Utilities

   $ 2,989     $ 2,838  

Transport

     2,360       2,333  

Energy

     926       927  

Corporate and other

     (53     (146 )
  

 

 

   

 

 

 

Net debt

   $ 6,222     $ 5,952  
  

 

 

   

 

 

 

Partnership capital by segment

    

Utilities

   $ 1,931     $ 1,928  

Transport

     2,527       2,456  

Energy

     711       702  

Corporate and other

     (64     100   
  

 

 

   

 

 

 

Partnership capital

   $ 5,105     $ 5,186  
  

 

 

   

 

 

 

 

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CAPITAL RESOURCES AND LIQUIDITY

The nature of our asset base and the quality of our associated cash flows enable us to maintain a stable and low cost capital structure. We attempt to maintain sufficient financial liquidity at all times so that we are able to participate in attractive opportunities as they arise, better withstand sudden adverse changes in economic circumstances and maintain a relatively high distribution of our FFO to unitholders. Our principal sources of liquidity are cash flows from our operations, undrawn credit facilities and access to public and private capital markets. We also structure the ownership of our assets to enhance our ability to monetize them to provide additional liquidity, if necessary. Certain subsidiaries may be subject to limitations on their ability to declare and pay dividends. Any limitations existing at March 31, 2014 and 2013 were insignificant and would not adversely impact our ability to meet cash obligations.

Our group-wide liquidity was $2,550 million at March 31, 2014, was in line with at December 31, 2013, and comprised of the following:

 

     As of  

(US$ MILLIONS)

   March 31, 2014     December 31, 2013  

Corporate cash and cash equivalents

   $ 416     $ 523  

Committed corporate credit facility

     1,400       1,400  

Draws on corporate credit facility

     —          —     

Commitments under corporate credit facility

     (99     (99

Proportionate cash retained in businesses

     379       330  

Proportionate availability under subsidiary credit facilities

     454       428  
  

 

 

   

 

 

 

Group-wide liquidity

   $ 2,550     $ 2,582  
  

 

 

   

 

 

 

 

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We finance our assets principally at the operating company level with debt that generally has long-term maturities, few restrictive covenants and no recourse to either Brookfield Infrastructure or our other operations. At the operating company level, we endeavour to maintain prudent levels of debt. We also strive to ladder our principal repayments over a number of years. On a proportionate basis as of March 31, 2014, scheduled principal repayments over the next five years are as follows:

 

                                                                                                       

(US$ MILLIONS)

  Average 
Term
(years)
  2014     2015     2016     2017     2018     Beyond     Total  

Recourse borrowings

               

Corporate borrowings

  4   $ —        $ —        $  —        $ 363      $  —        $ —        $ 363   
 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recourse borrowings

  4     —          —          —          363        —          —          363   
 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-recourse borrowings1, 2

               

Utilities

               

Regulated Distribution

  13     —          —          35        —          —          935        970   

Regulated Terminal

  7     —          18        230        —          —          961        1,209   

Electricity Transmission

  11     81        38        80        64        5        611        879   
 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  11     81        56        345        64        5        2,507        3,058   

Transport

               

Railroad

  9     —          —          16        —          —          1,114        1,130   

Ports

  9     10        39        49        10        227        123        458   

Toll Roads

  7     54        217        13        69        13        650        1,016   
 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  8     64        256        78        79        240        1,887        2,604   

Energy

               

Energy Transmission, Distribution & Storage

  7     16        —          —          506        —          385        907   

District Energy

  20     —          —          21        —          —          64        85   
 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  8     16        —          21        506        —          449        992   

Total non-recourse borrowings1, 2

  10     161        312        444        649        245        4,843        6,654   
 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total borrowings3

  10   $ 161      $ 312      $ 444      $ 1,012      $ 245      $ 4,843      $ 7,017   
 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash retained in businesses

               

Utilities

                $ 69   

Transport

                  244   

Energy

                  66   

Corporate and other

                  416   
               

 

 

 

Total cash retained

                $ 795   
               

 

 

 

Net debt

               

Utilities

                $ 2,989   

Transport

                  2,360   

Energy

                  926   

Corporate

                  (53
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net debt

      2%        5%        6%       

14%

       4%        69%      $ 6,222   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1.

Represents non-recourse debt to Brookfield Infrastructure as the holders have recourse only to the underlying operations.

2.

Non-recourse project debt from our social infrastructure operations has been excluded from the above tables as this is long-term debt which is fully amortized during the term of our concession contracts.

3.

As of March 31, 2014, approximately 39% has been issued as floating rate debt. Brookfield Infrastructure and its subsidiaries have entered into interest rate swaps whereby the floating rate debt has been converted to fixed rate debt, effectively reducing floating rate debt maturities to approximately 12% of our total borrowings.

Our debt has an average term of 10 years. On a proportionate basis, our net debt-to-capitalization ratio as of March 31, 2014 was 55%. The average cash interest rates for our utilities, transport, energy and corporate platforms were 5.2%, 6.5%, 6.9% and 2.9%, respectively (March 31, 2013: 5.5%, 6.2%, 7.4% and 3.5% respectively). The weighted average cash interest rate was 5.8% for the overall business (March 31, 2013: 6.6%).

 

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Proportionate debt can be reconciled to consolidated debt as follows:

 

                                                             
     As of  

(US$ MILLIONS)

   March 31, 2014     December 31, 2013  

Consolidated debt

   $ 6,197      $ 6,167   

Less: borrowings attributable to non-controlling interest

     (1,675     (1,675

Premium on debt and cross currency swaps

     105        (67

Add proportionate share of borrowings of investments in associates:

    

Utilities

     700        716   

Transport

     911        885   

Energy

     779        779   
  

 

 

   

 

 

 

Proportionate debt

   $ 7,017      $ 6,805   
  

 

 

   

 

 

 

CONTRACTUAL OBLIGATIONS

The table below outlines Brookfield Infrastructure’s contractual obligations as at March 31, 2014:

 

     Payments due by period  

(US$ MILLIONS)

   Total      Less than
1 year
     1-2 years      2-5 years      5+ years  

Accounts payable and other liabilities

   $ 685       $ 596       $ 3       $ 8       $ 78   

Interest-bearing liabilities(1)

     8,925         417         587         2,125         5,796   

Finance lease liabilities

     34         3         3         5         23   

Other long-term liabilities

     649         —           135         236         278   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 10,293       $ 1,016       $ 728       $ 2,374       $ 6,175   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1.

Comprised of non-recourse borrowings and corporate borrowings and includes interest payments of $286 million, $284 million, $698 million and $1,302 million for the periods as follows: less than 1 year, 1-2 years, 2-5 years and 5 years and thereafter, respectively. Interest payments are calculated based on interest rates in effect as at the balance sheet date.

In addition, pursuant to the Master Services Agreement, on a quarterly basis we pay a Base Management Fee to Brookfield equal to 0.3125% (1.25% annually) of the market value, plus non-recourse debt of the partnership. Based on the market value of the partnership as of March 31, 2014, this fee is estimated to be approximately $100 million per year based on our current capitalization and unit price.

FINANCIAL INSTRUMENTS—FOREIGN CURRENCY HEDGING STRATEGY

To the extent that we believe it is economic to do so, our strategy is to hedge a portion of our equity investments and/or cash flows exposed to foreign currencies. The following key principles form the basis of our foreign currency hedging strategy:

 

   

We leverage any natural hedges that may exist within our operations

 

   

We utilize local currency debt financing to the extent possible

 

   

We may utilize derivative contracts to the extent that natural hedges are insufficient

The following table presents our hedged position in foreign currencies as of March 31, 2014:

 

     Net Investment Hedges  

(US$ MILLIONS)

   USD      AUD     GBP     BRL     CLP      CAD     EUR     COP  

Equity Investment—US$

   $ 977       $ 1,648      $ 988     $ 794      $ 300       $ 169      $ 166      $ 63   

FX contracts—US$

     2,747         (1,334     (988     (111     —           (169     (145     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net unhedged—US$

   $ 3,724       $ 314      $ —        $ 683      $ 300       $ —        $ 21      $ 63   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

At March 31, 2014, we had hedges in place equal to approximately 67% of our net equity investment in foreign currencies. In the three months ended March 31, 2014, we recorded losses in comprehensive income of $37 million related to these contracts.

 

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CAPITAL REINVESTMENT

Our financing plan is to fund our recurring growth capital expenditures with cash flow generated by our operations, as well as debt financing that is sized to maintain our credit profile. To fund large scale development projects and acquisitions, we will evaluate a variety of capital sources including proceeds from selling non-core assets, equity and debt financing. We will seek to raise additional equity if we believe that we can earn returns on these investments in excess of the cost of the incremental equity.

The following table highlights the sources and uses of cash for the year:

 

                   
     Three months ended March 31  

(US$ MILLIONS)

   2014     2013  

Funds from operations (FFO)

   $ 186      $ 160   

Less maintenance capital

     (23     (26
  

 

 

   

 

 

 

Funds available for distribution (AFFO)

     163        134   

Distributions paid

     (112     (94
  

 

 

   

 

 

 

Funds available for reinvestment

     51        40   
  

 

 

   

 

 

 

Growth capital expenditures

     (145     (106

Asset level debt funding of growth capex

     71        49   

New investments

     (39     (17

Project level (repayments) draws

     (27     290   

Repayments of corporate credit facility

     —          (222

Changes in working capital and other

     31        (22
  

 

 

   

 

 

 

Change in proportionate cash retained in business

     (58     12   

Opening, proportionate cash retained in business

     853        210   
  

 

 

   

 

 

 

Closing, proportionate cash retained in business

   $ 795      $ 222   
  

 

 

   

 

 

 

The following table presents the components of growth and maintenance capital expenditures by operating platform:

 

               
     Three months ended March 31  

(US$ MILLIONS)

   2014      2013  

Growth capital expenditures by segment

     

Utilities

   $ 68       $ 55   

Transport

     66         48   

Energy

     11         3   
  

 

 

    

 

 

 
   $ 145       $ 106   
  

 

 

    

 

 

 
     Actual Capex  
THREE MONTHS ENDED MARCH 31    Three months ended March 31  

(US$ MILLIONS)

   2014      2013  

Maintenance capital expenditures by segment

     

Utilities

   $ 2       $ 6   

Transport

     18         14   

Energy

     3         6   
  

 

 

    

 

 

 
   $ 23       $ 26   
  

 

 

    

 

 

 

We estimate annual maintenance capital expenditures of $15-20 million, $80-90 million and $25-35 million for our utilities, transport and energy operations, respectively, for a total range between $120-145 million.

 

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PARTNERSHIP CAPITAL

The total number of partnership units outstanding was comprised of the following:

 

                                                             
     As of  
     March 31, 2014      December 31, 2013  

Redeemable Partnership Units, held by Brookfield

     58,739,416         58,739,416   

General partnership units

     1,066,929         1,066,929   

Limited partnership units

     150,297,157         150,252,174   
  

 

 

    

 

 

 

Total

     210,103,502         210,058,519   
  

 

 

    

 

 

 

The partnership had total units outstanding of 210,103,502 as of March 31, 2014.

An affiliate of Brookfield, in its capacity as the special limited partner of the Holding LP is entitled to incentive distributions which are based on the amount by which quarterly distributions on the limited partnership units exceed specified target levels. To the extent distributions on partnership units exceed $0.305 per quarter, the incentive distribution rights entitle the special limited partner to 15% of incremental distributions above this threshold to $0.33 per unit. To the extent that distributions on limited partnership units exceed $0.33 per unit, the incentive distribution rights entitle the special limited partner to 25% of incremental distributions above this threshold. During the three months ended March 31, 2014, an incentive distribution of $11 million was paid to the special limited partner (for the three months ended March 31, 2013: $8 million).

RELATED PARTY TRANSACTIONS

In the normal course of operations, Brookfield Infrastructure entered into the transactions below with related parties on market terms. These transactions have been measured at fair value and are recognized on the interim condensed and consolidated financial statements.

The immediate parent of Brookfield Infrastructure is the managing general partner of the partnership. The ultimate parent of Brookfield Infrastructure is Brookfield. Other related parties of Brookfield Infrastructure represent its subsidiary and operating entities.

Transactions with the immediate parent

Throughout the period, the managing general partner, in its capacity as the partnership’s general partner, incurs director fees, a portion of which are charged at cost to the partnership in accordance with the limited partnership agreement. Less than $1 million in director fees were incurred during the three months ended March 31, 2014 (less than $1 million during the three months ended March 31, 2013).

Transactions with other related parties

Since inception, Brookfield Infrastructure had a management agreement with its external managers, wholly owned subsidiaries of Brookfield.

Pursuant to the Master Services Agreement, on a quarterly basis, Brookfield Infrastructure pays a base management fee, (the “Base Management Fee”), to affiliates of Brookfield (the “Manager”) equal to 0.3125% per quarter (1.25% annually) of the market value of the partnership. The Base Management Fee was $25 million for the three months ended March 31, 2014 ($26 million during the three months ended March 31, 2013).

For purposes of calculating the Base Management Fee, the market value of the partnership is equal to the volume weighted average of the closing prices of the partnership’s units on the NYSE (or other exchange or market where the partnership’s units are principally traded) for each of the last five trading days of the applicable quarter multiplied by the number of issued and outstanding units of the partnership on the last of those days (assuming full conversion of Brookfield’s interest in Brookfield Infrastructure into units of the partnership), plus the amount of third-party debt, net of cash, with recourse to the partnership and Brookfield Infrastructure’s holding entity Brookfield Infrastructure LP (“Holding LP”) and certain holding entities held directly by the Holding LP.

During the three months ended March 31, 2014, $2 million was reimbursed at cost to the Manager of the partnership ($2 million and during the three months ended March 31, 2013). These amounts represent third party costs that were paid for by Brookfield on behalf of Brookfield Infrastructure relating to general and administrative expenses, and acquisition related expenses of Brookfield Infrastructure. These expenses were charged to Brookfield Infrastructure at cost.

Brookfield Infrastructure has placed funds on deposit with Brookfield. Interest earned on the deposits is at market terms. At March 31, 2014, Brookfield Infrastructure’s deposit balance with Brookfield was $90 million (December 31, 2013: $262 million) and earned interest of less than $1 million for the three months ended March 31, 2014 ($nil during the three months ended March 31, 2013).

 

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Brookfield Infrastructure’s North American district energy operation has various right-of-way easements and leases office space on market terms with subsidiaries of Brookfield Office Properties Inc. The North American district energy operation also utilizes consulting and engineering services provided by wholly-owned subsidiaries of Brookfield on market terms.

OFF-BALANCE SHEET ARRANGEMENTS

Brookfield Infrastructure has no off-balance sheet arrangements.

Brookfield Infrastructure, on behalf of our subsidiaries provide letters of credit, which include, but are not limited to, guarantees for debt service reserves, capital reserves, construction completion and performance. As at March 31, 2014, letters of credit issued by subsidiaries of Brookfield Infrastructure amounted to $116 million.

In the normal course of operations, we execute agreements that provide for indemnification and guarantees to third parties in transactions such as business dispositions and acquisitions, construction projects, capital projects, and sales and purchases of assets and services. We have also agreed to indemnify our directors and certain of our officers and employees. The nature of substantially all of the indemnification undertakings prevents us from making a reasonable estimate of the maximum potential amount that we could be required to pay third parties, as many of the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, we have made no significant payments under such indemnification agreements.

RECONCILIATION OF NON-IFRS FINANCIAL MEASURES

To measure performance, amongst other measures, we focus on FFO. We define FFO as net income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, non-cash valuation gains or losses and other items. FFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by IFRS. FFO is therefore unlikely to be comparable to similar measures presented by other issuers.

FFO has limitations as an analytical tool:

 

   

FFO does not include depreciation and amortization expense; because we own capital assets with finite lives, depreciation and amortization expense recognizes the fact that we must maintain or replace our asset base in order to preserve our revenue generating capability;