EX-99.1 2 bipq22017ex991.htm EXHIBIT 99.1 Exhibit



Exhibit 99.1
Brookfield Infrastructure Partners L.P.
Interim Report Q2 2017
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2017 AND DECEMBER 31, 2016 AND
FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016


Brookfield Infrastructure Partners L.P. (our “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, energy and communications infrastructure businesses in North and South America, Asia Pacific and Europe.
Brookfield Asset Management Inc. (together with its affiliates other than Brookfield Infrastructure, “Brookfield”) has an approximate 30% interest in Brookfield Infrastructure. Brookfield Infrastructure has appointed Brookfield as its Service Provider to provide certain management, administrative and advisory services, for a fee, under the Master Services Agreement.




BROOKFIELD INFRASTRUCTURE PARTNERS L.P.
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 
 
 
As of
US$ MILLIONS, UNAUDITED
Notes
 
June 30, 2017
 
December 31, 2016
Assets
 
 
 
 
 
Cash and cash equivalents
4
 
$
468

 
$
786

Financial assets
4
 
206

 
241

Accounts receivable and other
4
 
813

 
485

Inventory
 
 
96

 
101

Assets classified as held for sale
 
 
20

 
19

Current assets
 
 
1,603

 
1,632

Property, plant and equipment
5
 
9,188

 
8,656

Intangible assets
6
 
9,874

 
4,465

Investments in associates and joint ventures
7
 
5,085

 
4,727

Investment properties
 
 
163

 
154

Goodwill
3
 
1,304

 
502

Financial assets
4
 
812

 
900

Other assets
 
 
201

 
165

Deferred income tax assets
 
 
74

 
74

Total assets
 
 
$
28,304

 
$
21,275

 
 
 
 
 
 
Liabilities and Partnership Capital
 
 
 
 
 
Liabilities
 
 
 
 
 
Accounts payable and other
4
 
$
953

 
$
712

Corporate borrowings
4,8
 
308

 
295

Non-recourse borrowings
4,8
 
236

 
279

Financial liabilities
4
 
276

 
229

Current liabilities
 
 
1,773

 
1,515

Corporate borrowings
4,8
 
2,048

 
707

Non-recourse borrowings
4,8
 
7,515

 
7,045

Financial liabilities
4
 
1,082

 
152

Other liabilities
3
 
651

 
580

Deferred income tax liabilities
3
 
2,591

 
1,612

Preferred shares
4
 
20

 
20

Total liabilities
 
 
15,680

 
11,631

 
 
 
 
 
 
Partnership capital
 
 
 
 
 
Limited partners
12
 
4,253

 
4,611

General partner
12
 
26

 
27

Non-controlling interest attributable to:
 
 
 
 
 
Redeemable Partnership Units held by Brookfield
12
 
1,705

 
1,860

Interest of others in operating subsidiaries
 
 
6,045

 
2,771

Preferred unitholders
12
 
595

 
375

Total partnership capital
 
 
12,624

 
9,644

Total liabilities and partnership capital
 
 
$
28,304

 
$
21,275


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

2 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

BROOKFIELD INFRASTRUCTURE PARTNERS L.P.
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATING RESULTS
 
 
 
For the three-month period ended June 30
 
For the six-month period ended June 30
US$ MILLIONS, UNAUDITED
Notes
 
2017

 
2016

 
2017

 
2016

Revenues
 
 
$
934

 
$
462

 
$
1,590

 
$
916

Direct operating costs
 
 
(373
)
 
(198
)
 
(716
)
 
(400
)
General and administrative expenses
 
 
(59
)
 
(40
)
 
(110
)
 
(77
)
Depreciation and amortization expense
5,6
 
(206
)
 
(108
)
 
(326
)
 
(208
)
 
 
 
296

 
116

 
438

 
231

Interest expense
 
 
(107
)
 
(101
)
 
(201
)
 
(196
)
Share of earnings from investments in associates and joint ventures
7
 
36

 
106

 
59

 
110

Mark-to-market on hedging items
4
 
(29
)
 
32

 
(66
)
 
40

Other (expense) income
3,4
 
(5
)
 
7

 
19

 
62

Income before income tax
 
 
191

 
160

 
249

 
247

Income tax (expense) recovery
 
 
 
 
 
 
 
 
 
Current
 
 
(38
)
 
(8
)
 
(50
)
 
(12
)
Deferred
 
 
(18
)
 
7

 
(18
)
 
12

Net income
 
 
$
135

 
$
159

 
$
181

 
$
247

 
 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
 
Limited partners
 
 
$
(16
)
 
$
96

 
$
(24
)
 
$
137

General partner
 
 
28

 
20

 
56

 
40

Non-controlling interest attributable to:
 
 

 
 
 

 
 
Redeemable Partnership Units held by Brookfield
 
 
(7
)
 
40

 
(11
)
 
57

Interest of others in operating subsidiaries
 
 
122

 
1

 
146

 
9

Preferred unitholders
 
 
8

 
2

 
14

 
4

 
 
 
 
 
 
 
 
 
 
Basic and diluted (loss) earnings per limited partner unit:
12
 
$
(0.06
)
 
$
0.39

 
$
(0.09
)
 
$
0.56

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

Q2 2017 INTERIM REPORT 3

BROOKFIELD INFRASTRUCTURE PARTNERS L.P.
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
 
 
 
For the three-month period ended June 30
 
For the six-month period ended June 30
US$ MILLIONS, UNAUDITED
Notes
 
2017

 
2016

 
2017

 
2016

Net income
 
 
$
135

 
$
159

 
$
181

 
$
247

 
 
 
 
 
 
 
 
 
 
Other comprehensive (loss) income(1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Items that may be reclassified subsequently to profit or loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
 
(255
)
 
(12
)
 
(52
)
 
257

Cash flow hedge
4
 
23

 
(74
)
 
28

 
—

Net investment hedge
4
 
(76
)
 
120

 
(197
)
 
19

Available-for-sale securities
 
 
2

 
3

 
2

 
29

Taxes on the above items
 
 
(3
)
 
25

 
2

 
11

Investment in associates and joint ventures
7
 
(26
)
 
12

 
(52
)
 
(13
)
Total other comprehensive (loss) income
 
 
(335
)
 
74

 
(269
)
 
303

Comprehensive (loss) income
 
 
$
(200
)
 
$
233

 
$
(88
)
 
$
550

 
 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
 
Limited partners
 
 
$
(127
)
 
$
159

 
$
(143
)
 
$
303

General partner
 
 
27

 
21

 
55

 
42

Non-controlling interest attributable to:
 
 
 
 
 
 
 
 
 
Redeemable Partnership Units held by Brookfield
 
 
(53
)
 
65

 
(61
)
 
125

Interest of others in operating subsidiaries
 
 
(55
)
 
(14
)
 
47

 
76

Preferred unitholders
 
 
8

 
2

 
14

 
4

1.
None of the other comprehensive income earned by our partnership during the three and six-month periods ended June 30, 2017 and 2016 relates to items that will not be reclassified subsequently to profit or loss.
The accompanying notes are an integral part of the financial statements.


4 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

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 JUNE 30, 2017
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
units held by
Brookfield

 
(Deficit)

 
Ownership
changes

 
Accumulated
other
comprehensive
income(1)

 
Non-controlling
interest – 
Redeemable
Partnership
Units held by
Brookfield

 
Non-controlling
interest – in
operating
subsidiaries

 
Preferred
Unitholders
Capital

 
Total
partners'
capital

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as at March 31, 2017
 
$
4,221

 
$
(604
)
 
$
143

 
$
728

 
$
4,488

 
$
19

 
$
1

 
$
7

 
$
27

 
$
1,778

 
$
(266
)
 
$
(34
)
 
$
327

 
$
1,805

 
$
2,859

 
$
595

 
$
9,774

Net (loss) income
 
—

 
(16
)
 
—

 
—

 
(16
)
 
—

 
28

 
—

 
28

 
—

 
(7
)
 
—

 
—

 
(7
)
 
122

 
8

 
135

Other comprehensive loss
 
—

 
—

 
—

 
(111
)
 
(111
)
 
—

 
—

 
(1
)
 
(1
)
 
—

 
—

 
—

 
(46
)
 
(46
)
 
(177
)
 
—

 
(335
)
Comprehensive (loss) income
 
—

 
(16
)
 
—

 
(111
)
 
(127
)
 
—

 
28

 
(1
)
 
27

 
—

 
(7
)
 
—

 
(46
)
 
(53
)
 
(55
)
 
8

 
(200
)
Unit issuance
 
5

 
—

 
—

 
—

 
5

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5

Partnership distributions(2)
 
—

 
(113
)
 
—

 
—

 
(113
)
 
—

 
(28
)
 
—

 
(28
)
 
—

 
(47
)
 
—

 
—

 
(47
)
 
—

 
(8
)
 
(196
)
Acquisition of subsidiaries(3)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3,429

 
—

 
3,429

Subsidiary distributions to
   non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(188
)
 
—

 
(188
)
Balance as at June 30, 2017
 
$
4,226

 
$
(733
)
 
$
143

 
$
617

 
$
4,253

 
$
19

 
$
1

 
$
6

 
$
26

 
$
1,778

 
$
(320
)
 
$
(34
)
 
$
281

 
$
1,705

 
$
6,045

 
$
595

 
$
12,624

1.
Refer to Note 14 Accumulated Other Comprehensive Income.
2.
Refer to Note 13 Distributions.
3.
Refer to Note 3 Acquisition of Businesses.
 
 
Limited Partners
 
General Partner
 
Non-Controlling Interest – Redeemable
Partnership Units held by Brookfield
 
 
 
 
 
 
THREE-MONTH PERIOD
ENDED JUNE 30, 2016
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
units held by
Brookfield

 
(Deficit)

 
Ownership
changes

 
Accumulated
other
comprehensive
income(1)

 
Non-controlling
interest – 
Redeemable
Partnership
Units held by
Brookfield

 
Non-controlling
interest – in
operating
subsidiaries

 
Preferred
Unitholders
Capital

 
Total
partners’
capital

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as at March 31, 2016
 
$
3,719

 
$
(611
)
 
$
126

 
$
658

 
$
3,892

 
$
19

 
$
—

 
$
5

 
$
24

 
$
1,528

 
$
(266
)
 
$
(19
)
 
$
297

 
$
1,540

 
$
1,746

 
$
189

 
$
7,391

Net income
 
—

 
96

 
—

 


 
96

 
—

 
20

 
—

 
20

 
—

 
40

 
—

 
—

 
40

 
1

 
2

 
159

Other comprehensive income
   (loss)
 
—

 
—

 
—

 
63

 
63

 
—

 
—

 
1

 
1

 
—

 
—

 
—

 
25

 
25

 
(15
)
 
—

 
74

Comprehensive income (loss)
 
—

 
96

 
—

 
63

 
159

 
—

 
20

 
1

 
21

 
—

 
40

 
—

 
25

 
65

 
(14
)
 
2

 
233

Unit issuance
 
8

 
—

 
—

 
—

 
8

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
8

Unit repurchases
 
(6
)
 
—

 
—

 
—

 
(6
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(6
)
Partnership distributions(2)
 
—

 
(93
)
 
—

 
—

 
(93
)
 
—

 
(20
)
 
—

 
(20
)
 
—

 
(38
)
 
—

 
—

 
(38
)
 
—

 
(2
)
 
(153
)
Acquisition of subsidiaries(3)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
627

 
—

 
627

Subsidiary distributions to
   non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(22
)
 
—

 
(22
)
Disposition of interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(24
)
 
—

 
(24
)
Other Items
 
—

 
99

 
1

 
(99
)
 
1

 
—

 
1

 
(1
)
 
—

 
—

 
41

 
1

 
(41
)
 
1

 
7

 
—

 
9

Balance as at June 30, 2016
 
$
3,721

 
$
(509
)
 
$
127

 
$
622

 
$
3,961

 
$
19

 
$
1

 
$
5

 
$
25

 
$
1,528

 
$
(223
)
 
$
(18
)
 
$
281

 
$
1,568

 
$
2,320

 
$
189

 
$
8,063

1.
Refer to Note 14 Accumulated Other Comprehensive Income.
2.
Refer to Note 13 Distributions.
3.
Refer to Note 3 Acquisition of Businesses.

The accompanying notes are an integral part of the financial statements.
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
 
 
 
 
 
 
SIX-MONTH PERIOD
ENDED JUNE 30, 2017
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
units held by
Brookfield

 
(Deficit)

 
Ownership
changes

 
Accumulated
other
comprehensive
income(1)

 
Non-controlling
interest – 
Redeemable
Partnership
Units held  by
Brookfield

 
Non-controlling
interest – in
operating
subsidiaries

 
Preferred
Unitholders
Capital

 
Total
partners’
capital

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as at January 1, 2017
 
$
4,215

 
$
(483
)
 
$
143

 
$
736

 
$
4,611

 
$
19

 
$
1

 
$
7

 
$
27

 
$
1,778

 
$
(215
)
 
$
(34
)
 
$
331

 
$
1,860

 
$
2,771

 
$
375

 
$
9,644

Net (loss) income
 
—

 
(24
)
 
—

 
—

 
(24
)
 
—

 
56

 
—

 
56

 
—

 
(11
)
 
—

 
—

 
(11
)
 
146

 
14

 
181

Other comprehensive loss
 
—

 
—

 
—

 
(119
)
 
(119
)
 
—

 
—

 
(1
)
 
(1
)
 
—

 
—

 
—

 
(50
)
 
(50
)
 
(99
)
 
—

 
(269
)
Comprehensive (loss) income
 
—

 
(24
)
 
—

 
(119
)
 
(143
)
 
—

 
56

 
(1
)
 
55

 
—

 
(11
)
 
—

 
(50
)
 
(61
)
 
47

 
14

 
(88
)
Unit issuance
 
11

 
—

 
—

 
—

 
11

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
11

Partnership distributions(2)
 
—

 
(226
)
 
—

 
—

 
(226
)
 
—

 
(56
)
 
—

 
(56
)
 
—

 
(94
)
 
—

 
—

 
(94
)
 
—

 
(14
)
 
(390
)
Acquisition of subsidiaries(3)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3,429

 
—

 
3,429

Subsidiary distributions to
   non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(202
)
 
—

 
(202
)
Preferred unit issuance(4)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
220

 
220

Balance as at June 30, 2017
 
$
4,226

 
$
(733
)
 
$
143

 
$
617

 
$
4,253

 
$
19

 
$
1

 
$
6

 
$
26

 
$
1,778

 
$
(320
)
 
$
(34
)
 
$
281

 
$
1,705

 
$
6,045

 
$
595

 
$
12,624

1.
Refer to Note 14 Accumulated Other Comprehensive Income.
2.
Refer to Note 13 Distributions.
3.
Refer to Note 3 Acquisition of Businesses.
4.
Refer to Note 12 Partnership Capital.
 
 
Limited Partners
 
General Partner
 
Non-Controlling Interest – Redeemable
Partnership Units held by Brookfield
 
 
 
 
 
 
SIX-MONTH PERIOD
ENDED JUNE 30, 2016
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
units held by
Brookfield

 
(Deficit)

 
Ownership
changes

 
Accumulated
other
comprehensive
income(1)

 
Non-controlling
interest – 
Redeemable
Partnership
Units held  by
Brookfield

 
Non-controlling
interest – in
operating
subsidiaries

 
Preferred
Unitholders
Capital

 
Total
partners’
capital

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as at January 1, 2016
 
$
3,716

 
$
(559
)
 
$
126

 
$
555

 
$
3,838

 
$
19

 
$
—

 
$
4

 
$
23

 
$
1,528

 
$
(245
)
 
$
(19
)
 
$
254

 
$
1,518

 
$
1,608

 
$
189

 
$
7,176

Net income
 
—

 
137

 
—

 
—

 
137

 
—

 
40

 
—

 
40

 
—

 
57

 
—

 
—

 
57

 
9

 
4

 
247

Other comprehensive income
 
—

 
—

 
—

 
166

 
166

 
—

 
—

 
2

 
2

 
—

 
—

 
—

 
68

 
68

 
67

 
—

 
303

Comprehensive income
 
—

 
137

 
—

 
166

 
303

 
—

 
40

 
2

 
42

 
—

 
57

 
—

 
68

 
125

 
76

 
4

 
550

Unit issuance
 
11

 
—

 
—

 
—

 
11

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
11

Unit repurchases
 
(6
)
 
—

 
—

 
—

 
(6
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(6
)
Partnership distributions(2)
 
—

 
(186
)
 
—

 
—

 
(186
)
 
—

 
(40
)
 
—

 
(40
)
 
—

 
(76
)
 
—

 
—

 
(76
)
 
—

 
(4
)
 
(306
)
Acquisition of subsidiaries(3)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
691

 
—

 
691

Disposition of interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(24
)
 
—

 
(24
)
Subsidiary distributions to
   non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(38
)
 
—

 
(38
)
Other Items
 
—

 
99

 
1

 
(99
)
 
1

 
—

 
1

 
(1
)
 
—

 
—

 
41

 
1

 
(41
)
 
1

 
7

 
—

 
9

Balance as at June 30, 2016
 
$
3,721

 
$
(509
)
 
$
127

 
$
622

 
$
3,961

 
$
19

 
$
1

 
$
5

 
$
25

 
$
1,528

 
$
(223
)
 
$
(18
)
 
$
281

 
$
1,568

 
$
2,320

 
$
189

 
$
8,063

1.
Refer to Note 14 Accumulated Other Comprehensive Income.
2.
Refer to Note 13 Distributions.
3.
Refer to Note 3 Acquisition of Businesses.

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

Q2 2017 INTERIM REPORT 5

BROOKFIELD INFRASTRUCTURE PARTNERS L.P.
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
For the three-month period ended June 30
 
For the six-month period ended June 30
US$ MILLIONS, UNAUDITED
Notes
 
2017

 
2016

 
2017

 
2016

Operating Activities
 
 
 
 
 
 
 
 
 
Net income
 
 
$
135

 
$
159

 
$
181

 
$
247

Adjusted for the following items:
 
 
 
 
 
 
 
 
 
Earnings from investments in associates and joint ventures, net of distributions received
7
 
(16
)
 
(103
)
 
(21
)
 
(90
)
Depreciation and amortization expense
5,6
 
206

 
108

 
326

 
208

Mark-to-market on hedging items, provisions and other
4
 
54

 
(16
)
 
75

 
(32
)
Deferred tax expense (recovery)
 
 
18

 
(7
)
 
18

 
(12
)
Changes in non-cash working capital, net
 
 
22

 
18

 
18

 
—

Cash from operating activities
 
 
419

 
159

 
597

 
321

 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
Acquisition of subsidiaries, net of cash acquired
3
 
(4,203
)
 
(285
)
 
(4,203
)
 
(320
)
Disposal of subsidiaries, net of cash disposed of
 
 
—

 
127

 
—

 
127

Investments in associates and joint ventures
7
 
(269
)
 
(502
)
 
(318
)
 
(504
)
Purchase of long lived assets
5,6
 
(176
)
 
(131
)
 
(351
)
 
(294
)
Disposal of long lived assets
5,6
 
—

 
2

 
41

 
2

Purchase of financial assets
 
 
(76
)
 
—

 
(219
)
 
(35
)
Sale of financial assets
 
 
148

 
11

 
195

 
28

Net settlement of foreign exchange hedging items
 
 
(10
)
 
(20
)
 
(40
)
 
30

Cash used by investing activities
 
 
(4,586
)
 
(798
)
 
(4,895
)
 
(966
)
 
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
 
Distributions to general partner
13
 
(28
)
 
(20
)
 
(56
)
 
(40
)
Distributions to other unitholders
13
 
(168
)
 
(133
)
 
(334
)
 
(266
)
Subsidiary distributions to non-controlling interest
 
 
(188
)
 
(22
)
 
(202
)
 
(38
)
Capital provided by non-controlling interest
3
 
2,817

 
293

 
2,817

 
357

Capital provided to non-controlling interest
 
 
—

 
(18
)
 
—

 
(18
)
Proceeds from corporate borrowings
8
 
309

 
—

 
537

 
—

Proceeds from corporate credit facility
8
 
792

 
926

 
1,253

 
1,415

Repayment of corporate credit facility
8
 
(473
)
 
(280
)
 
(479
)
 
(617
)
Proceeds from subsidiary borrowings
8
 
325

 
527

 
341

 
595

Repayment of subsidiary borrowings
8
 
(75
)
 
(507
)
 
(132
)
 
(540
)
Repayment of other financing activities
 
 
—

 
—

 
—

 
(38
)
Preferred units issued
12
 
—

 
—

 
220

 
—

Partnership units issued, net of issuance costs
12
 
5

 
8

 
11

 
11

Partnership units repurchased
 
 
—

 
(6
)
 
—

 
(6
)
Cash from financing activities
 
 
3,316

 
768

 
3,976

 
815

 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
Change during the period
 
 
(851
)
 
129

 
(322
)
 
170

Impact of foreign exchange on cash
 
 
(4
)
 
1

 
4

 
9

Balance, beginning of period
 
 
1,323

 
248

 
786

 
199

Balance, end of period
 
 
$
468

 
$
378

 
$
468

 
$
378


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

6 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

NOTES TO THE UNAUDITED INTERIM CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2017 AND DECEMBER 31, 2016 AND
FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Brookfield Infrastructure Partners L.P. (our “partnership” and, together with its subsidiaries and operating entities, “Brookfield Infrastructure”) owns and operates utility, transport, energy and communications infrastructure businesses in North and South America, Europe and the Asia Pacific region. Our 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. Brookfield Infrastructure is a subsidiary of Brookfield Asset Management Inc. (together with its affiliates other than Brookfield Infrastructure, “Brookfield”). Our partnership’s units are listed on the New York Stock Exchange and the Toronto Stock Exchange under the symbols “BIP” and “BIP.UN”, respectively. Our cumulative Class A preferred limited partnership units, Series 1, Series 3, Series 5 and Series 7 are listed on the Toronto Stock Exchange under the symbols “BIP.PR.A”, “BIP.PR.B”, “BIP.PR.C” and “BIP.PR.D”, respectively. Our partnership’s registered office is 73 Front Street, Hamilton, HM12, Bermuda.
In these notes to the interim condensed and consolidated financial statements, references to “units” are to the limited partnership units in our partnership other than the preferred units, references to our “preferred units” are to preferred limited partnership units in our partnership and references to our “unitholders” and “preferred unitholders” are to the holders of our units and preferred units, respectively. References to “Series 5 Preferred Units” and “Series 7 Preferred Units” are to cumulative Class A preferred limited partnership units, Series 5, and cumulative Class A preferred limited partnership units, Series 7, in our partnership, respectively.
On September 14, 2016, our partnership completed a three-for-two split of our units by way of a subdivision of units (the “Unit Split”), whereby unitholders received an additional one-half of a unit for each unit held, resulting in the issuance of approximately 115 million additional units. Our preferred units were not affected by the Unit Split. All historical per unit disclosures have been adjusted to effect for the change in units due to the Unit Split.
2. SUMMARY OF ACCOUNTING POLICIES
a) Statement of compliance
These interim condensed and consolidated financial statements of our 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, 2016. The accounting policies that our partnership applied in its annual consolidated financial statements as of and for the year ended December 31, 2016 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 our partnership on August 14, 2017.
b) Recently adopted accounting standard amendments
Brookfield Infrastructure applied, for the first time, certain amendments to Standards applicable to our partnership that became effective January 1, 2017. The impact of adopting these amendments on our partnership’s accounting policies and disclosures are as follows:
IAS 7 Statement of Cash Flows (“IAS 7”)
In January 2016, the IASB issued amendments to IAS 7, effective for annual periods beginning on or after January 1, 2017. The amendment requires that the following changes in liabilities arising from financing activities are disclosed (to the extent necessary): (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes. Amendments to IAS 7 were applied prospectively and Brookfield Infrastructure’s 2017 annual financial statement disclosures will contain information to reflect this amendment.

Q2 2017 INTERIM REPORT 7

c) Standards issued but not yet adopted
IFRS 15 Revenue from Contracts with Customers (“IFRS 15”)
IFRS 15, Revenue from Contracts with Customers specifies how and when revenue should be recognized as well as requiring more informative and relevant disclosures. The Standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The Standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts and a number of revenue-related interpretations. IFRS 15 applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. IFRS 15 must be applied for periods beginning on or after January 1, 2018 with early application permitted.
Our partnership has a global team in place to evaluate the financial statements and the administrative impact of adopting the standard, has participated in strategic planning sessions with Brookfield and developed an adoption plan. Our partnership has also identified major revenue streams to be assessed, and is currently in the process of accumulating, identifying and inventorying detailed information on major contracts that may be impacted by the changes at the transition date. Next steps involve completing the overall analysis, assessing any potential impact to IT systems and internal controls, and reviewing the additional disclosure required
Our partnership has concluded, on a preliminary basis, to apply the modified retrospective transition method, in which a cumulative catch-up adjustment will be recorded through equity upon initial adoption. Additionally, our partnership continues to monitor international developments in the interpretation of the Standard as a component of our ongoing impact evaluation
IFRS 9 Financial Instruments (“IFRS 9”)
In July 2014, the IASB issued the final publication of the IFRS 9 standard, superseding IAS 39, Financial Instruments. This standard establishes principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows. This new standard also includes a new general hedge accounting standard which will align hedge accounting more closely with an entity’s risk management activities. It does not fully change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however, it will allow more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. The standard has a mandatory effective date for annual periods beginning on or after January 1, 2018, with early adoption permitted. Our partnership has a global team in place to evaluate the financial statements and administrative impact of IFRS 9 on its consolidated financial statements. Our partnership has concluded, on a preliminary basis, to adopt the standard retrospectively with no restatement of comparatives. A cumulative catch-up adjustment, if any, will be recorded through equity upon initial adoption. Additionally, our partnership has commenced the issue identification phase of the transition project and expects to commence the impact assessment phase in the third quarter. Additionally, we continue to monitor developments in the interpretation of the Standard as a component of our ongoing impact evaluation.
IFRS 16 Leases (“IFRS 16”)
The IASB has published a new standard, IFRS 16. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17, Leases and related interpretations and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15 has also been applied. Brookfield Infrastructure is currently evaluating the impact of IFRS 16 on its consolidated financial statements.
d) Interpretations, not yet adopted
IFRIC 22 Foreign Currency Transactions (“IFRIC 22”)
In December 2016, the IASB issued IFRIC 22, effective for annual periods beginning on or after January 1, 2018. The interpretation clarifies that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. The Interpretation may be applied either retrospectively or prospectively. Brookfield Infrastructure is currently evaluating the impact of IFRIC 22 on its consolidated financial statements, including the adoption method.

8 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

IFRIC 23 Uncertainty over Income Tax Treatments (“IFRIC 23”)
In June 2017, the IASB published IFRIC 23, effective for annual periods beginning on or after January 1, 2019. The interpretation requires an entity to assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings and to exercise judgment in determining whether each tax treatment should be considered independently or whether some tax treatments should be considered together. The decision should be based on which approach provides better predictions of the resolution of the uncertainty. An entity also has to consider whether it is probable that the relevant authority will accept each tax treatment, or group of tax treatments, assuming that the taxation authority with the right to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so. The interpretation may be applied on either a fully retrospective basis or a modified retrospective basis without restatement of comparative information. Brookfield Infrastructure is currently evaluating the impact of IFRIC 23 on its consolidated financial statements.
3. ACQUISITION OF BUSINESSES
a) Acquisition of Brazilian regulated gas transmission business
On April 4, 2017, Brookfield Infrastructure, alongside institutional partners and a Brookfield-sponsored infrastructure fund (the “consortium”), acquired an effective 28% interest in Nova Transportadora do Sudeste S.A. (“NTS”), a Brazilian regulated gas transmission business, for total consideration by Brookfield Infrastructure of $1.6 billion (consortium total of $5.1 billion). Brookfield Infrastructure’s consideration consists of $1.3 billion in cash (consortium total of $4.2 billion) and deferred consideration of $0.3 billion (consortium total of $0.9 billion) payable five years from the close of the transaction. Concurrently, Brookfield Infrastructure entered into a voting agreement with an affiliate of Brookfield, providing Brookfield Infrastructure the right to direct the relevant activities of the entity, thereby providing Brookfield Infrastructure with control. Accordingly, Brookfield Infrastructure consolidated the entity effective April 4, 2017. Acquisition costs of $8 million were recorded as Other expenses within the Consolidated Statements of Operating Results in the second quarter of 2017.

Consideration transferred
US$ MILLIONS
 
Cash
$
1,302

Consideration payable(1)
262

Total Consideration
$
1,564

Fair value of assets and liabilities acquired as of April 4, 2017:
US$ MILLIONS
 
Cash and cash equivalents
$
89

Accounts receivable and other(2)
317

Intangible assets(2),(3)
5,539

Goodwill(2)
797

Accounts payable and other liabilities(2)
(245
)
Deferred income tax liabilities(2)
(940
)
Net assets acquired before non-controlling interest
5,557

Non-controlling interest(4)
(3,993
)
Net assets acquired
1,564

1.
The deferred consideration is payable on the fifth anniversary of the date of acquisition and has therefore been recorded within the non-current financial liabilities on the consolidated statements of financial position. The deferred consideration is denominated in U.S. dollars and escalates annually at 3.35%. The financial liability will be subsequently measured at amortized cost.
2.
The fair values of accounts receivable and other, intangible assets, goodwill, accounts payable and other liabilities and deferred income tax liabilities for this business have been determined on a provisional basis, pending finalization of the determination of the fair values of the acquired net assets.
3.
Represents regulated gas transmission authorization agreements between NTS and the Brazilian government.
4.
Non-controlling interest represents the interest not acquired by Brookfield Infrastructure, measured at fair value at the acquisition date.

Upon acquisition of an interest in NTS, an additional deferred tax liability of $887 million was recorded. The deferred income tax liability arose as the tax bases of the net assets acquired were lower than their fair values. The inclusion of this liability in the net book value of the acquired business gave rise to goodwill of $797 million, which is recoverable so long as the tax circumstances that gave rise to the goodwill do not change. To date, no such changes have occurred. None of the goodwill recognized is deductible for income tax purposes.

Q2 2017 INTERIM REPORT 9

b) Individually insignificant business combinations
The following table summarizes the purchase price allocation of individually insignificant business combinations that have been completed during the three and six-month periods ended June 30, 2017.
US$ MILLIONS
 
Cash
$
9

Consideration payable
17

Total consideration
$
26


Fair value of assets and liabilities acquired (provisional):
US$ MILLIONS
 
Accounts receivable and other
$
3

Goodwill
8

Property, plant and equipment
103

Deferred income tax and other liabilities
(9
)
Non-recourse borrowings
(30
)
Net assets acquired before non-controlling interest
75

Non-controlling interest(1)
(49
)
Net assets acquired
$
26

1.    Non-controlling interest represents the interest not acquired by Brookfield Infrastructure, measured at fair value at the acquisition date.
c) Acquisition of Australian ports business
On August 18, 2016, Brookfield Infrastructure, alongside institutional partners and a Brookfield-sponsored infrastructure fund, and Qube Holdings Limited, along with its respective institutional partners, acquired the business of Asciano Limited. As part of this transaction, Brookfield Infrastructure tendered its 20% interest in Asciano acquired in the fourth quarter of 2015. As a result of tendering its interest in Asciano Limited, a gain of $123 million was recorded in Other income on the Consolidated Statements of Operating Results during the third quarter of 2016, representing the reclassification of available for sale mark-to-market gains of $44 million and foreign exchange gains of $79 million to net income from accumulated other comprehensive income.
Concurrently, Brookfield Infrastructure acquired an effective 27% interest in Linx Cargo Care through a Brookfield-sponsored infrastructure fund and other members of the Brookfield Consortium for total consideration of $145 million, comprising of $13 million in cash and a portion of our partnership’s previously existing interest in shares of Asciano Limited with an acquisition date fair value of $132 million (Brookfield consortium total consideration of $63 million cash and $442 million in fair value of shares, funded through our partnership). Concurrently, Brookfield Infrastructure entered into a voting agreement with an affiliate of Brookfield, providing Brookfield Infrastructure the right to direct the relevant activities of the entity, thereby providing Brookfield Infrastructure with control. Accordingly, Brookfield Infrastructure consolidated the entity effective August 18, 2016. Acquisition costs of $17 million were recorded as Other expenses within the Consolidated Statements of Operating Results in 2016.
Consideration transferred
US$ MILLIONS
 
Cash
$
13

Common shares of Asciano Limited
132

Total consideration
$
145


10 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Fair value of assets and liabilities acquired as of August 18, 2016:
US$ MILLIONS
 
Cash and cash equivalents
$
12

Accounts receivable and other(1)
232

Assets classified as held for sale(2)
115

Property, plant and equipment
225

Intangible assets
69

Goodwill(1)
215

Liabilities directly associated with assets classified as held for sale(2)
(58
)
Deferred income tax and other liabilities(1)
(124
)
Non-recourse borrowings
(181
)
Net assets acquired before non-controlling interest
505

Non-controlling interest(3)
(360
)
Net assets acquired
$
145

1.
The fair values of accounts receivable, goodwill, and deferred income tax and other liabilities for this operation have been determined on a provisional basis, pending finalization of the determination of the fair values of the acquired net assets.
2.
$115 million of equity accounted investments and $58 million of non-recourse borrowings relate to a non-core business acquired as part of the acquisition of the Australian ports business which was sold in the fourth quarter of 2016. The net proceeds recorded approximated the carrying value of the business and therefore no gain or loss on disposition was recorded.
3.
Non-controlling interest represents the interest not acquired by Brookfield Infrastructure, measured at fair value at the acquisition date.
The additional goodwill recorded on acquisition primarily represents expected growth arising from the business’ position as an incumbent in a fragmented bulk port services industry. None of the goodwill recognized is expected to be deductible for income tax purposes.
d) Acquisition of North American gas storage business
On July 19, 2016, Brookfield Infrastructure expanded its gas storage business through an acquisition of an effective 40% interest in Niska Gas Storage (“Niska”) for consideration of $227 million through a Brookfield-sponsored infrastructure fund. The consideration was comprised of $141 million of Niska senior notes owned by Brookfield Infrastructure, $19 million of a working capital credit facility provided to Niska by Brookfield Infrastructure prior to the acquisition date, and cash of $67 million(1). Concurrently, Brookfield Infrastructure entered into a voting agreement with an affiliate of Brookfield, providing Brookfield Infrastructure the right to direct the relevant activities of the entity, thereby providing Brookfield Infrastructure with control. Accordingly, Brookfield Infrastructure consolidated the entity effective July 19, 2016. Acquisition costs of $11 million were recorded as Other expenses within the Consolidated Statements of Operating Results in 2016.
Consideration transferred
US$ MILLIONS
 
Cash
$
67

Senior notes(2)
141

Working capital credit facility
19

Total consideration
$
227

1.
The total consideration through the Brookfield-sponsored partnership includes $170 million cash, $357 million in fair value of the Senior notes and $48 million of a working capital facility.
2.
On the date of acquisition of the North American gas storage operation, Brookfield Infrastructure held a pre-existing interest in the Senior notes of $117 million, representing the original cost of $104 million and $13 million of income recorded as Other income on the Consolidated Statements of Operating Results in prior periods. On the acquisition date, Brookfield Infrastructure recorded an additional $24 million of Other income on the Consolidated Statements of Operating Results associated with the recycling of accumulated mark-to-market gains on revaluation of the Senior notes.

Q2 2017 INTERIM REPORT 11

Fair value of assets and liabilities acquired as of July 19, 2016:
US$ MILLIONS
 
Cash and cash equivalents
$
15

Accounts receivable and other
99

Inventory
39

Property, plant and equipment
825

Goodwill
82

Deferred income tax and other liabilities
(148
)
Non-recourse borrowings
(337
)
Net assets acquired before non-controlling interest
575

Non-controlling interest(1)
(348
)
Net assets acquired
$
227

1.
Non-controlling interest represents the interest not acquired by Brookfield Infrastructure and was measured at fair value on the acquisition date.
Upon acquisition of the North American gas storage business by Brookfield Infrastructure, a deferred tax liability of $82 million was recorded. The deferred income tax liability arose because tax bases of the net assets acquired were lower than their fair values. The inclusion of this liability in the net book value of the acquired business gave rise to goodwill of $82 million, which is recoverable so long as the tax circumstances that gave rise to the goodwill do not change. To date, no such changes have occurred. None of the goodwill recognized is deductible for income tax purposes.
e) Acquisition of Peruvian toll road business
On June 28, 2016, Brookfield Infrastructure expanded its toll road business to Peru as it acquired an effective 17% interest in Rutas de Lima S.A.C. (“Rutas”), through a Brookfield-sponsored infrastructure fund, for total consideration of $127 million, comprised of $118 million of cash (total of $400 million funded through a Brookfield-sponsored infrastructure fund) and an amount payable of $9 million (fund total of $30 million). Concurrently, Brookfield Infrastructure entered into a voting agreement with an affiliate of Brookfield, providing Brookfield Infrastructure the right to direct the relevant activities of the entity, thereby providing Brookfield Infrastructure with control. Accordingly, Brookfield Infrastructure consolidated the entity effective June 28, 2016. Acquisition costs of less than $1 million were recorded as Other expenses within the Consolidated Statements of Operating Results in 2016.
Consideration transferred
US$ MILLIONS
 
Cash
$
118

Consideration payable(1)
9

Total consideration
$
127


12 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Fair value of assets and liabilities acquired as of June 28, 2016:
US$ MILLIONS
 
Cash and cash equivalents(2)
$
115

Accounts receivable and other
121

Property, plant and equipment
6

Intangible assets(3)
973

Goodwill
139

Deferred income tax and other liabilities
(160
)
Non-recourse borrowings
(441
)
Net assets acquired before non-controlling interest
753

Non-controlling interest(4)
(626
)
Net assets acquired
$
127

1.
The purchase price is payable in a series of four payments, one on the date of acquisition as well as three equal payments made 18 months, 27 months and 36 months subsequent to this date and consequently an amount payable of $9 million is recorded as a financial liability within the Consolidated Statements of Financial Position as at June 30, 2017.
2.
Includes $114 million of restricted cash primarily related to toll road construction obligations.
3.
Represents a 30 year Peruvian toll road service concession agreement expiring in January 2043. The agreement obligates Rutas to maintain the toll roads to an acceptable standard in exchange for the ability to charge regulated tariffs to the users of the toll road.
4.
Non-controlling interest represents the interest not acquired by Brookfield Infrastructure, measured at fair value at the acquisition date.
Upon acquisition of the Peruvian toll road business by Brookfield Infrastructure, a deferred tax liability of $139 million was recorded. The deferred income tax liability arose because tax bases of the net assets acquired were lower than their fair values. The inclusion of this liability in the net book value of the acquired business gave rise to goodwill of $139 million, which is recoverable so long as the tax circumstances that gave rise to the goodwill do not change. To date, no such changes have occurred. None of the goodwill recognized is deductible for income tax purposes.
f) Supplemental information
Had the acquisition of the Brazilian regulated gas transmission business and the individually insignificant business combinations been effective January 1, 2017, the revenue and net income of Brookfield Infrastructure would have been $1,941 million and $335 million, respectively, for the six-month period ended June 30, 2017.
In determining the pro-forma revenue and net income attributable to our partnership, management has:
•
Calculated depreciation of property, plant and equipment and intangible assets acquired on the basis of the fair values at the time of the business combination rather than the carrying amounts recognized in the pre-acquisition financial statements and;
•
Based borrowing costs on the funding levels, credit ratings and debt and equity position of Brookfield Infrastructure after the business combination.
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, as appropriate. 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 such as 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 analyses, 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 contracts which form part of financing arrangements is calculated by way of discounted cash flows using market interest rates and applicable credit spreads.

Q2 2017 INTERIM REPORT 13

Classification of Financial Instruments
Financial instruments classified as fair value through profit or loss are carried at fair value on the Interim Condensed and 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 or 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.
Carrying Value and Fair Value of Financial Instruments
The following table provides the allocation of financial instruments and their associated classifications as at June 30, 2017:
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
$
—

 
$
—

 
$
468

 
$
468

Accounts receivable and other
—

 
—

 
813

 
813

Financial assets
(current and non-current)(1)
698

 
64

 
209

 
971

Marketable securities
—

 
47

 
—

 
47

Total
$
698

 
$
111

 
$
1,490

 
$
2,299

 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
Corporate borrowings
$
—

 
$
—

 
$
2,356

 
$
2,356

Non-recourse borrowings
(current and non-current)
—

 
—

 
7,751

 
7,751

Accounts payable and other
—

 
—

 
953

 
953

Preferred shares(2)
—

 
—

 
20

 
20

Financial liabilities
(current and non-current)(1)
507

 
—

 
851

 
1,358

Total
$
507

 
$
—

 
$
11,931

 
$
12,438

1.
Derivative instruments which are elected for hedge accounting totaling $550 million are included in financial assets and $245 million of derivative instruments are included in financial liabilities.
2.
$20 million of preferred shares issued to wholly-owned subsidiaries of Brookfield.

14 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

The following table provides the allocation of financial instruments and their associated financial instrument classifications as at December 31, 2016:
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
$
—

 
$
—

 
$
786

 
$
786

Accounts receivable and other
—

 
—

 
485

 
485

Financial assets
(current and non-current)(1)
893

 
12

 
233

 
1,138

Marketable securities
—

 
3

 
—

 
3

Total
$
893

 
$
15

 
$
1,504

 
$
2,412

 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
Corporate borrowings
$
—

 
$
—

 
$
1,002

 
$
1,002

Non-recourse borrowings
(current and non-current)
—

 
—

 
7,324

 
7,324

Accounts payable and other
—

 
—

 
712

 
712

Preferred shares(2)
—

 
—

 
20

 
20

Financial liabilities
(current and non-current)(1)
381

 
—

 
—

 
381

Total
$
381

 
$
—

 
$
9,058

 
$
9,439

1.
Derivative instruments which are elected for hedge accounting totaling $722 million are included in financial assets and $185 million of derivative instruments are included in financial liabilities.
2.
$20 million of preferred shares issued to wholly-owned subsidiaries of Brookfield.
The following table provides the carrying values and fair values of financial instruments as at June 30, 2017 and December 31, 2016:
 
June 30, 2017
 
December 31, 2016
US$ MILLIONS
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Financial assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
468

 
$
468

 
$
786

 
$
786

Accounts receivable and other
813

 
813

 
485

 
485

Financial assets (current and non-current)
971

 
971

 
1,138

 
1,138

Marketable securities
47

 
47

 
3

 
3

Total
$
2,299

 
$
2,299

 
$
2,412

 
$
2,412

 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
Corporate borrowings(1)
$
2,356

 
$
2,383

 
$
1,002

 
$
1,023

Non-recourse borrowings(2)
7,751

 
7,997

 
7,324

 
7,478

Accounts payable and other (current and non-current)
953

 
953

 
712

 
712

Preferred shares(3)
20

 
20

 
20

 
20

Financial liabilities (current and non-current)(4)
1,358

 
1,358

 
381

 
381

Total
$
12,438

 
$
12,711

 
$
9,439

 
$
9,614

1.
Corporate borrowings are 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 certain borrowings at the U.K. port operation 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.
3.
$20 million of preferred shares issued to wholly-owned subsidiaries of Brookfield.
4.
Financial liabilities include deferred consideration related to our recent acquisitions that are classified under level 3. The fair value is determined using a discounted cash flow model based our incremental borrowing rate over the interest rate on the deferred consideration.

Q2 2017 INTERIM REPORT 15

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 and highly probably forecasted issuances of debt. The settlement dates coincide with the dates on which the interest is payable on the underlying debt, and the amount accumulated in equity is reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or loss. For the three and six-month periods ended June 30, 2017, pre-tax net unrealized gains of $23 million and $28 million (2016: losses of $74 million and $nil, respectively) were recorded in other comprehensive income for the effective portion of the cash flow hedges. As of June 30, 2017, there was a net derivative asset balance of $392 million relating to derivative contracts designated as cash flow hedges (December 31, 2016: $464 million asset).
Net Investment Hedges
Brookfield Infrastructure uses foreign exchange contracts 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 and six-month periods ended June 30, 2017, unrealized net losses of $67 million and $158 million (2016: gains of $140 million and $31 million) were recorded in other comprehensive income for the effective portion of hedges of net investments in foreign operations. Further, for the three and six-month periods ended June 30, 2017, Brookfield Infrastructure recognized a $9 million and $39 million loss, respectively, (2016: loss of $20 million and $12 million) in other comprehensive income relating to the net settlement of foreign exchange contracts in the period. As of June 30, 2017, there was a net unrealized derivative liability balance of $87 million relating to derivative contracts designated as net investment hedges (December 31, 2016: net unrealized derivative asset balance of $73 million).

16 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Fair Value Hierarchical Levels—Financial Instruments
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 derivative contracts and other financial assets carried at fair value in an inactive market.
•
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 interest rate swap contracts, derivative contracts, certain equity securities carried at fair value which are not traded in an active market and the non-controlling interest’s share of net assets of limited life funds.
The fair value of our 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
 
June 30, 2017
 
December 31, 2016
Marketable securities
Level 1(1)
 
$
47

 
$
3

Foreign currency forward contracts
Level 2(2)
 
 
 
 
Financial asset
 
 
$
290

 
$
210

Financial liability
 
 
156

 
48

Interest rate swaps & other
Level 2(2)
 
 
 
 
Financial asset
 
 
$
427

 
$
653

Financial liability
 
 
262

 
287

Other contracts
Level 3(3)
 
 
 
 
Financial asset
 
 
$
45

 
$
42

Financial liability
 
 
89

 
46

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 our credit risk and the credit risk of various counterparties.
3.
Valuation technique: Discounted cash flow. Future cash flows primarily driven by freight volumes and the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates.
Assets and liabilities measured at fair value on a recurring basis include $809 million (2016: $908 million) of financial assets and $507 million (2016: $381 million) of financial liabilities which are measured at fair value using valuation inputs based on management’s best estimates.
During the three-month period ended June 30, 2017, 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.
 
June 30, 2017
 
December 31, 2016
US$ MILLIONS
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Financial assets
 
 
 
 
 
 
 
 
 
 
 
Marketable securities
$
47

 
$
—

 
$
—

 
$
3

 
$
—

 
$
—

Financial assets (current and non-current)
—

 
717

 
45

 
—

 
863

 
42

Financial liabilities
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities (current and non-current)
$
—

 
$
418

 
$
89

 
$
—

 
$
335

 
$
46



Q2 2017 INTERIM REPORT 17

5. PROPERTY, PLANT AND EQUIPMENT
US$ MILLIONS
Utility
Assets
 
Transport
Assets
 
Energy
Assets
 
Total
Assets
Gross Carrying Amount:
 
 
 
 
 
 
 
Balance at January 1, 2016
$
2,945

 
$
2,150

 
$
1,457

 
$
6,552

Additions, net of disposals
399

 
76

 
89

 
564

Non-cash (disposals) additions
(31
)
 
3

 
—

 
(28
)
Acquisitions through business combinations
—

 
242

 
825

 
1,067

Net foreign currency exchange differences
(418
)
 
(109
)
 
9

 
(518
)
Balance at December 31, 2016
$
2,895

 
$
2,362

 
$
2,380

 
$
7,637

Additions, net of disposals
142

 
44

 
51

 
237

Non-cash disposals
(2
)
 
(2
)
 
(7
)
 
(11
)
Acquisition through business combinations(1)
—

 
—

 
103

 
103

Net foreign currency exchange differences
127

 
159

 
38

 
324

Balance at June 30, 2017
$
3,162

 
$
2,563

 
$
2,565

 
$
8,290

Accumulated depreciation:
 
 
 
 
 
 
 
Balance at January 1, 2016
$
(291
)
 
$
(418
)
 
$
(159
)
 
$
(868
)
Depreciation expense
(128
)
 
(127
)
 
(99
)
 
(354
)
Non-cash disposals
—

 
4

 
—

 
4

Net foreign currency exchange differences
36

 
24

 
—

 
60

Balance at December 31, 2016
$
(383
)
 
$
(517
)
 
$
(258
)
 
$
(1,158
)
Depreciation expense
(55
)
 
(71
)
 
(57
)
 
(183
)
Disposals
15

 
12

 
—

 
27

Net foreign currency exchange differences
(13
)
 
(36
)
 
(8
)
 
(57
)
Balance at June 30, 2017
$
(436
)
 
$
(612
)
 
$
(323
)
 
$
(1,371
)
Accumulated fair value adjustments:
 
 
 
 
 
 
 
Balance at January 1, 2016
$
945

 
$
777

 
$
226

 
$
1,948

Fair value adjustments
185

 
25

 
125

 
335

Net foreign currency exchange differences
(87
)
 
(20
)
 
1

 
(106
)
Balance at December 31, 2016
$
1,043

 
$
782

 
$
352

 
$
2,177

Net foreign currency exchange differences
31

 
52

 
9

 
92

Balance at June 30, 2017
$
1,074

 
$
834

 
$
361

 
$
2,269

Net book value:
 
 
 
 
 
 
 
December 31, 2016
$
3,555

 
$
2,627

 
$
2,474

 
$
8,656

June 30, 2017
$
3,800

 
$
2,785

 
$
2,603

 
$
9,188

1.
Refer to Note 3 Acquisition of Businesses.
6. INTANGIBLE ASSETS
 
As of
US$ MILLIONS
June 30, 2017
 
December 31, 2016
Cost
$
10,292

 
$
4,732

Accumulated amortization
(418
)
 
(267
)
Total
$
9,874

 
$
4,465


18 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Intangible assets are allocated to the following cash generating units:
 
As of
US$ MILLIONS
June 30, 2017
 
December 31, 2016
Brazilian regulated gas transmission operation
$
5,226

 
$
—

Australian regulated terminal
1,933

 
1,817

Peruvian toll roads
1,114

 
1,049

Chilean toll roads
1,045

 
1,054

U.K. port operation
278

 
265

Indian toll roads
136

 
136

Other(1)
142

 
144

Total
$
9,874

 
$
4,465

1.
Other intangibles are comprised of customer contracts at our Australian ports operations and order books at our U.K. regulated distribution operation.
The following table presents the change in the cost balance of intangible assets:
US$ MILLIONS
For the six-month
period ended
June 30, 2017

Cost at beginning of the period
$
4,732

Additions through business combinations
5,539

Additions, net of disposals
46

Foreign currency translation
(25
)
Balance at June 30, 2017
$
10,292

The following table presents the accumulated amortization for Brookfield Infrastructure’s intangible assets:
US$ MILLIONS
For the six-month
period ended
June 30, 2017

Accumulated amortization at beginning of the period
$
(267
)
Disposals
1

Amortization
(143
)
Foreign currency translation
(9
)
Balance at June 30, 2017
$
(418
)


Q2 2017 INTERIM REPORT 19

7. INVESTMENT IN ASSOCIATES AND JOINT VENTURES
The following table represents the change in the balance of investments in associates and joint ventures:
US$ MILLIONS
For the six-month period ended June 30, 2017
 
For the 12 month period ended December 31, 2016
Balance at beginning of period
$
4,727

 
$
2,973

Share of earnings for the period(1)
59

 
248

Foreign currency translation and other
71

 
219

Share of other reserves for the period—OCI
(52
)
 
225

Distributions
(38
)
 
(46
)
Acquisitions(1),(2),(3)
318

 
1,108

Ending Balance
$
5,085

 
$
4,727

1.
In May 2016, Brookfield Infrastructure, alongside an institutional investor and a partner in the business, executed a privatization of the Brazilian toll road operation. The privatization resulted in our partnership’s ownership interest increasing from 40% to 48% in exchange for cash consideration of $73 million. During 2016 and subsequent to the privatization, Brookfield Infrastructure, alongside an institutional partner, injected $394 million into the Brazilian toll road operation for growth capital expenditure requirements and to repay maturing debt, increasing our partnership’s ownership interest from 48% to 49%.
2.
In May 2017, Brookfield Infrastructure and its partner in its North American natural gas transmission operation each injected $200 million into the business to pay down operating level debt. A similar transaction was completed in April 2016 by Brookfield Infrastructure and its partner in the amount of $312 million.
3.
In August 2016, Brookfield Infrastructure expanded its ports operations in Australia as it acquired an effective 13% interest in PTH No 1 Pty Ltd (“Patrick”) through a Brookfield-sponsored infrastructure fund, alongside institutional partners, for total consideration of $202 million. The Brookfield Consortium maintains 50% of the voting rights of Patrick in a joint venture with Qube Holdings Limited, along with its institutional partners. Brookfield Infrastructure has joint control through its position in the business. Accordingly, Brookfield Infrastructure equity accounts for the entity.
The following table represents the carrying value of our partnership’s investments in associates and joint ventures:
 
As of
US$ MILLIONS
June 30, 2017
 
December 31, 2016
Brazilian toll road operation
$
1,614

 
$
1,505

North American natural gas transmission operation
1,014

 
806

Chilean transmission operation
713

 
699

European telecommunications infrastructure operation
556

 
536

Brazilian rail operation
376

 
376

Australian ports operation
186

 
181

Other associates(1)
626

 
624

Ending Balance
$
5,085

 
$
4,727

1.
Other includes our partnership’s Texas electricity transmission project, Brazil electricity transmission operation, European port operation, North American west coast container terminal, U.S. gas storage operation and other investments in associates and joint ventures held through consolidated subsidiaries.
The following table summarizes the aggregate balances of investments in associates on a 100% basis:
 
As of
US$ MILLIONS
June 30, 2017
 
December 31, 2016
Financial position:
 
 
 
Total assets
$
36,827

 
$
35,434

Total liabilities
(19,488
)
 
(19,069
)
Net assets
$
17,339

 
$
16,365

 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017
 
2016
 
2017
 
2016
Financial performance:
 
 
 
 
 
 
 
Total revenue
$
1,629

 
$
1,179

 
$
3,074

 
$
2,249

Total income for the period
122

 
172

 
181

 
206

Brookfield Infrastructure’s share of net income
$
36

 
$
106

 
$
59

 
$
110



20 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

8. BORROWINGS
a) Corporate Borrowings
Brookfield Infrastructure has a $1.975 billion senior unsecured revolving credit facility used for general working capital including acquisitions. The $1.975 billion is available on a revolving basis for the full term of the facility. All amounts outstanding under this facility will be repayable on June 30, 2022. All obligations of Brookfield Infrastructure under the facility are guaranteed by our partnership. Loans under this facility accrue interest at a floating rate based on LIBOR plus 1.20%. Brookfield Infrastructure is required to pay an unused commitment fee under the facility of 18 basis points per annum. As at June 30, 2017, draws on the credit facility were $774 million (2016: $nil) and $47 million of letters of credit were issued (2016: $46 million).

 
Maturity
 
Annual Rate
 
Currency
 
As of
June 30, 2017
 
December 31, 2016
Corporate revolving credit facility
June 30, 2022
 
LIBOR plus 1.2%
 
US$
 
$
774

 
$
—

Medium-term notes(1):
 
 
 
 
 
 
 
 
 
Public - Canadian
October 10, 2017
 
3.5%
 
C$
 
308

 
295

Public - Canadian
October 30, 2018
 
3.0%
 
C$
 
96

 
93

Public - Canadian
October 30, 2020
 
3.5%
 
C$
 
289

 
279

Public - Canadian
March 11, 2022
 
3.5%
 
C$
 
348

 
335

Public - Canadian
February 22, 2024
 
3.3%
 
C$
 
232

 
—

Public - Canadian
February 22, 2024
 
3.3%
 
C$
 
309

 
—

Total
 
 
 
 
 
 
$
2,356

 
$
1,002

1.
See Note 11, Subsidiary Public Issuers for further details.
On April 17, 2017, Brookfield Infrastructure Finance ULC, a wholly-owned subsidiary of Brookfield Infrastructure, issued C$400 million of medium-term notes maturing February 22, 2024 with a coupon of 3.3%. The notes were issued at a premium with an effective interest rate of 3.1% per annum, which was swapped into U.S. dollars on a matched maturity basis at an all-in rate of 4.0%.
On February 22, 2017, Brookfield Infrastructure Finance ULC, a wholly-owned subsidiary of Brookfield Infrastructure, issued C$300 million of medium-term notes maturing February 22, 2024 with a coupon of 3.3%, which was swapped into U.S. dollars on a matched maturity basis at an all-in rate of 4.1%.
The strengthening of the Canadian dollar against the U.S. dollar during the six-month period ended June 30, 2017 resulted in an increase in corporate borrowings of $39 million from December 31, 2016.
b)    Non-Recourse Borrowings
 
As of
US$ MILLIONS
June 30, 2017
 
December 31, 2016
Current
$
236

 
$
279

Non-current
7,515

 
7,045

Total
$
7,751

 
$
7,324

Non-recourse borrowings have increased by $427 million since year-end. This increase is attributable to a $218 million increase of foreign denominated debt balances, predominately the Australian dollar and the British pound, and increased borrowings of $209 million at our operating entities.

Q2 2017 INTERIM REPORT 21

9. SEGMENT INFORMATION
IFRS 8, Operating Segments, requires operating segments to be determined based on information that is 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”), which enable the determination of 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, and non-cash valuation gains or losses. Adjusted EBITDA is calculated as net income excluding the impact of depreciation and amortization, interest expense, current and deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses.
 
 
Total attributable to Brookfield Infrastructure
 
 
 
 
 
 
FOR THE THREE-MONTH PERIOD ENDED
JUNE 30, 2017
US$ MILLIONS
 
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

 
Contribution
from
investments
in associates

 
Attributable
to non-
controlling
interest

 
As per
IFRS
financials(1)

 
 
 
 
 
 
 
 
Revenues
 
$
278

 
$
395

 
$
123

 
$
41

 
$
—

 
$
837

 
$
(408
)
 
$
505

 
$
934

Costs attributed to revenues
 
(73
)
 
(224
)
 
(60
)
 
(18
)
 
—

 
(375
)
 
220

 
(218
)
 
(373
)
General and administrative costs
 
—

 
—

 
—

 
—

 
(59
)
 
(59
)
 
—

 
—

 
(59
)
Adjusted EBITDA
 
205

 
171

 
63

 
23

 
(59
)
 
403

 
(188
)
 
287

 
 
Other (expense) income
 
(8
)
 
1

 
3

 
(1
)
 
7

 
2

 
1

 
(16
)
 
(13
)
Interest expense
 
(29
)
 
(38
)
 
(23
)
 
(3
)
 
(17
)
 
(110
)
 
44

 
(41
)
 
(107
)
FFO
 
168

 
134

 
43

 
19

 
(69
)
 
295

 
(143
)
 
230

 
 
Depreciation and amortization
 
(57
)
 
(75
)
 
(35
)
 
(19
)
 
—

 
(186
)
 
91

 
(111
)
 
(206
)
Deferred taxes
 
(12
)
 
2

 
5

 
3

 
(3
)
 
(5
)
 
(3
)
 
(10
)
 
(18
)
Mark-to-market on hedging items and other
 
(12
)
 
(18
)
 
(12
)
 
(1
)
 
(56
)
 
(99
)
 
19

 
21

 
(59
)
Share of earnings from associates
 
—

 
—

 
—

 
—

 
—

 
—

 
36

 
—

 
36

Net income attributable to non-controlling interest and preferred unitholders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(130
)
 
(130
)
Net income (loss) attributable to partnership(2)
 
$
87

 
$
43

 
$
1

 
$
2

 
$
(128
)
 
$
5

 
$
—

 
$
—

 
$
5

 
 
Total attributable to Brookfield Infrastructure
 
 
 
 
 
 
FOR THE THREE-MONTH PERIOD ENDED
JUNE 30, 2016
US$ MILLIONS
 
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

 
Contribution
from
investments
in associates

 
Attributable to non-controlling
interest

 
As per IFRS
financials(1)

 
 
 
 
 
 
 
 
 
Revenues
 
$
176

 
$
291

 
$
116

 
$
40

 
$
—

 
$
623

 
$
(311
)
 
$
150

 
$
462

Costs attributed to revenues
 
(42
)
 
(144
)
 
(50
)
 
(17
)
 
—

 
(253
)
 
154

 
(99
)
 
(198
)
General and administrative costs
 
—

 
—

 
—

 
—

 
(40
)
 
(40
)
 
—

 
—

 
(40
)
Adjusted EBITDA
 
134

 
147

 
66

 
23

 
(40
)
 
330

 
(157
)
 
51

 
 
Other income (expense)
 
1

 
(5
)
 
—

 
(1
)
 
18

 
13

 
6

 
(4
)
 
15

Interest expense
 
(35
)
 
(40
)
 
(23
)
 
(3
)
 
(12
)
 
(113
)
 
43

 
(31
)
 
(101
)
FFO
 
100

 
102

 
43

 
19

 
(34
)
 
230

 
(108
)
 
16

 
 
Depreciation and amortization
 
(40
)
 
(60
)
 
(31
)
 
(19
)
 
—

 
(150
)
 
78

 
(36
)
 
(108
)
Deferred taxes
 
(2
)
 
4

 
2

 
4

 
3

 
11

 
(8
)
 
4

 
7

Mark-to-market on hedging items and other
 
(32
)
 
81

 
(4
)
 
(4
)
 
24

 
65

 
(68
)
 
19

 
16

Share of earnings from associates
 
—

 
—

 
—

 
—

 
—

 
—

 
106

 
—

 
106

Net income attributable to non-controlling interest and preferred unitholders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3
)
 
(3
)
Net income (loss) attributable to partnership(2)
 
$
26

 
$
127

 
$
10

 
$
—

 
$
(7
)
 
$
156

 
$
—

 
$
—

 
$
156


22 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

 
 
Total attributable to Brookfield Infrastructure
 
 
 
 
 
 
FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 2017
US$ MILLIONS
 
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

 
Contribution
from
investments
in associates

 
Attributable to non-controlling
interest

 
As per
IFRS
financials(1)

 
 
 
 
 
 
 
 
 
Revenues
 
$
454

 
$
770

 
$
265

 
$
80

 
$
—

 
$
1,569

 
$
(788
)
 
$
809

 
$
1,590

Costs attributed to revenues
 
(121
)
 
(434
)
 
(116
)
 
(35
)
 
—

 
(706
)
 
411

 
(421
)
 
(716
)
General and administrative costs
 
—

 
—

 
—

 
—

 
(110
)
 
(110
)
 
—

 
—

 
(110
)
Adjusted EBITDA
 
333

 
336

 
149

 
45

 
(110
)
 
753

 
(377
)
 
388

 
 
Other (expense) income
 
(7
)
 
(2
)
 
6

 
(1
)
 
27

 
23

 
7

 
(16
)
 
14

Interest expense
 
(58
)
 
(77
)
 
(50
)
 
(6
)
 
(29
)
 
(220
)
 
93

 
(74
)
 
(201
)
FFO
 
268

 
257

 
105

 
38

 
(112
)
 
556

 
(277
)
 
298

 
 
Depreciation and amortization
 
(89
)
 
(151
)
 
(68
)
 
(36
)
 
—

 
(344
)
 
179

 
(161
)
 
(326
)
Deferred taxes
 
(18
)
 
7

 
—

 
5

 
(2
)
 
(8
)
 
(1
)
 
(9
)
 
(18
)
Mark-to-market on hedging items and other
 
(28
)
 
(39
)
 
(19
)
 
(2
)
 
(95
)
 
(183
)
 
40

 
32

 
(111
)
Share of earnings from associates
 
—

 
—

 
—

 
—

 
—

 
—

 
59

 
—

 
59

Net income attributable to non-controlling interest and preferred unitholders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(160
)
 
(160
)
Net income (loss) attributable to partnership(2)
 
$
133

 
$
74

 
$
18

 
$
5

 
$
(209
)
 
$
21

 
$
—

 
$
—

 
$
21


 
 
Total attributable to Brookfield Infrastructure
 
 
 
 
 
 
FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 2016
US$ MILLIONS
 
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

 
Contribution
from
investments
in associates

 
Attributable to non-controlling
interest

 
As per
IFRS
financials(1)

 
 
 
 
 
 
 
 
 
Revenues
 
$
341

 
$
560

 
$
242

 
$
83

 
$
—

 
$
1,226

 
$
(604
)
 
$
294

 
$
916

Costs attributed to revenues
 
(73
)
 
(281
)
 
(104
)
 
(39
)
 
—

 
(497
)
 
300

 
(203
)
 
(400
)
General and administrative costs
 
—

 
—

 
—

 
—

 
(77
)
 
(77
)
 
—

 
—

 
(77
)
Adjusted EBITDA
 
268

 
279

 
138

 
44

 
(77
)
 
652

 
(304
)
 
91

 
 
Other income (expense)
 
2

 
(9
)
 
1

 
(1
)
 
47

 
40

 
8

 
(2
)
 
46

Interest expense
 
(70
)
 
(74
)
 
(56
)
 
(5
)
 
(23
)
 
(228
)
 
90

 
(58
)
 
(196
)
FFO
 
200

 
196

 
83

 
38

 
(53
)
 
464

 
(206
)
 
31

 
 
Depreciation and amortization
 
(78
)
 
(114
)
 
(60
)
 
(38
)
 
—

 
(290
)
 
153

 
(71
)
 
(208
)
Deferred taxes
 
(8
)
 
6

 
5

 
6

 
4

 
13

 
(10
)
 
9

 
12

Mark-to-market on hedging items and other
 
(45
)
 
68

 
(8
)
 
(4
)
 
36

 
47

 
(47
)
 
44

 
44

Share of earnings from associates
 
—

 
—

 
—

 
—

 
—

 
—

 
110

 
—

 
110

Net income attributable to non-controlling interest and preferred unitholders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(13
)
 
(13
)
Net income (loss) attributable to partnership(2)
 
$
69

 
$
156

 
$
20

 
$
2

 
$
(13
)
 
$
234

 
$
—

 
$
—

 
$
234

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 our partnership’s Consolidated Statements of Operating Results on a line by line basis by aggregating the components comprising the earnings from our 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 interests—Redeemable Partnership Units held by Brookfield, general partner and limited partners.

Q2 2017 INTERIM REPORT 23

Segment assets
For the purpose of monitoring segment performance and allocating resources between segments, the CODM monitors 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 reportable operating segment for the periods under review:
 
Total Attributable to Brookfield Infrastructure
 
 
 
 
 
 
 
 
AS OF JUNE 30, 2017
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Corporate
& Other

 
Brookfield
Infrastructure

 
Contribution
from
investments
in associates

 
Attributable
to non-
controlling
interest

 
Working
capital
adjustment
and other

 
As per
IFRS
financials(1)

US$ MILLIONS
 
 
 
 
 
 
 
 
 
Total assets
$
6,078

 
$
6,412

 
$
3,062

 
$
982

 
$
(894
)
 
$
15,640

 
$
(2,764
)
 
$
11,359

 
$
4,069

 
$
28,304

 
Total Attributable to Brookfield Infrastructure
 
 
 
 
 
 
 
 
AS OF DECEMBER 31, 2016
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Corporate
& Other

 
Brookfield
Infrastructure

 
Contribution
from
investments
in associates

 
Attributable
to non-
controlling
interest

 
Working
capital
adjustment
and other

 
As per
IFRS
financials(1)

US$ MILLIONS
 
 
 
 
 
 
 
 
 
Total assets
$
4,605

 
$
6,160

 
$
3,032

 
$
933

 
$
(510
)
 
$
14,220

 
$
(2,996
)
 
$
6,496

 
$
3,555

 
$
21,275

1.
The above table provides 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 our 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 our partnership’s Consolidated Statements of Financial Position by removing net liabilities contained within investments in associates and joint ventures and reflecting the assets attributable to non-controlling interests, and adjusting for working capital assets which are netted against working capital liabilities.
10. CAPITAL MANAGEMENT
Our partnership’s approach to capital management is focused on maximizing returns to unitholders and ensuring capital is deployed in a manner consistent with achieving our investment return objectives.
Invested Capital, which tracks the amount of capital that has been contributed to our partnership, is a measure we utilize to assess returns on capital deployed, relative to targeted returns. Investment decisions are based on, amongst other measures and factors, targeted returns on Invested Capital of 12% to 15% annually over the long-term. We measure return on Invested Capital as Adjusted Funds From Operations (“AFFO”) divided by the weighted average Invested Capital for the period.
We define Invested Capital as partnership capital removing the following items: non-controlling interest - in operating subsidiaries, retained earnings or deficit, accumulated other comprehensive income and ownership changes.
 
As of
US$ MILLIONS
June 30, 2017
 
December 31, 2016
Partnership Capital
$
12,624

 
$
9,644

Remove impact of the following items since inception:
 
 
 
Non-controlling interest - in operating subsidiaries
(6,045
)
 
(2,771
)
Deficit (Earnings)
1,052

 
697

Accumulated Other Comprehensive Income
(904
)
 
(1,074
)
Ownership Changes
(109
)
 
(109
)
Invested Capital
$
6,618

 
$
6,387


24 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

The following table presents the change in Invested Capital during the three and six-month periods ended June 30, 2017:
US$ MILLIONS
For the three-month period
ended June 30, 2017
 
For the six-month period
ended June 30, 2017
Opening balance
$
6,613

 
$
6,387

Issuance of preferred units
—

 
220

Issuance of LP units under distribution reinvestment plan
5

 
11

Ending balance, June 30, 2017
6,618

 
6,618

Weighted Average Invested Capital
6,616

 
6,503

AFFO is defined as FFO (defined in Note 9, Segment Information) less maintenance capital expenditures. AFFO for the three and six month periods ended June 30, 2017 were $240 million and $456 million, respectively.
Our partnership has met its investment return objectives with return on Invested Capital of 14% for the six month-period ended June 30, 2017.
 
11. SUBSIDIARY PUBLIC ISSUERS
An indenture dated as of October 10, 2012 between certain wholly-owned subsidiaries of our partnership, Brookfield Infrastructure Finance ULC, Brookfield Infrastructure Finance LLC, Brookfield Infrastructure Finance Pty Ltd and Brookfield Infrastructure Finance Limited (collectively, the ‘‘Debt Issuers’’ together with Brookfield Infrastructure Preferred Equity Inc. the ‘‘Issuers’’), and Computershare Trust Company of Canada, as supplemented and amended from time to time (‘‘Indenture’’) provides for the distribution of one or more series of unsecured debentures or notes of the Debt Issuers.
On April 17, 2017, the Debt Issuers issued C$400 million of medium-term notes under the Indenture maturing February 22, 2024 in the Canadian bond market with a coupon of 3.3%. The notes were issued at a premium with an effective interest rate of 3.1% per annum, which was swapped into U.S. dollars on a matched maturity basis at an all-in rate of 4.0%.
On February 22, 2017, the Debt Issuers issued C$300 million of medium-term notes under the Indenture maturing February 22, 2024 in the Canadian bond market with a coupon of 3.3%, which was swapped into U.S. dollars on a matched maturity basis at an all-in rate of 4.1%.
On October 30, 2015, the Debt Issuers issued C$500 million of medium-term notes under the Indenture in the Canadian bond market in two tranches: C$125 million of three year notes maturing October 30, 2018 with a coupon of 3.0%; and C$375 million of five year notes maturing October 30, 2020 with a coupon of 3.5%. The three-year and five-year bonds were swapped into U.S. dollars on a matched maturity basis at an all-in rate of 3.8%.
On March 11, 2015, the Debt Issuers issued C$450 million of medium-term notes under the Indenture maturing March 11, 2022 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 3.9%.
On October 10, 2012, the Debt Issuers issued C$400 million of medium-term notes under the Indenture maturing October 10, 2017 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%.
These notes are unconditionally guaranteed by our partnership and its subsidiaries, Brookfield Infrastructure L.P. (the "Holding LP"), Brookfield Infrastructure Holdings (Canada) Inc., Brookfield Infrastructure US Holdings I Corporation and BIP Bermuda Holdings I Limited and, in the case of the notes issued in October 2012, Brookfield Infrastructure LLC.

Q2 2017 INTERIM REPORT 25

The following tables set forth consolidated summary financial information for our partnership and the Issuers:
FOR THE THREE-MONTH PERIOD ENDED
JUNE 30, 2017
US$ MILLIONS
 
Our partnership(1)

 
The Issuers

 
Subsidiaries of our
partnership other
than the Issuers(2)

 
Consolidating
adjustments(3)

 
Our
partnership
consolidated

 
 
 
 
 
Revenues
 
$
—

 
$
—

 
$
—

 
$
934

 
$
934

Net (loss) income attributable to partnership(4)
 
(16
)
 
—

 
5

 
16

 
5

 
 
 
 
 
 
 
 
 
 
 
FOR THE THREE-MONTH PERIOD ENDED
JUNE 30, 2016
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
—

 
$
—

 
$
—

 
$
462

 
$
462

Net income (loss) attributable to partnership(4)
 
96

 
—

 
156

 
(96
)
 
156

 
 
 
 
 
 
 
 
 
 
 
FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 2017
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
—

 
$
—

 
$
—

 
$
1,590

 
$
1,590

Net (loss) income attributable to partnership(4)
 
(24
)
 
—

 
21

 
24

 
21

 
 
 
 
 
 
 
 
 
 
 
FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 2016
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
—

 
$
—

 
$
—

 
$
916

 
$
916

Net income (loss) attributable to partnership(4)
 
137

 
—

 
234

 
(137
)
 
234

 
 
 
 
 
 
 
 
 
 
 
AS OF JUNE 30, 2017
 
 
 
 
 
 
 
 
 
 
Current assets
 
$
—

 
$
312

 
$
—

 
$
1,291

 
$
1,603

Non-current assets
 
4,799

 
—

 
4,137

 
17,765

 
26,701

Current liabilities
 
—

 
313

 
—

 
1,460

 
1,773

Non-current liabilities
 
—

 
1,274

 
—

 
12,633

 
13,907

Non-controlling interests – Redeemable Partnership Units held by Brookfield
 
—

 
—

 
—

 
1,705

 
1,705

Non-controlling interests – in operating subsidiaries
 
—

 
—

 
—

 
6,045

 
6,045

Preferred unitholders
 
—

 
—

 
—

 
595

 
595

 
 
 
 
 
 
 
 
 
 
 
AS OF DECEMBER 31, 2016
 
 
 
 
 
 
 
 
 
 
Current assets
 
$
—

 
$
3

 
$
—

 
$
1,629

 
$
1,632

Non-current assets
 
4,937

 
297

 
5,248

 
9,161

 
19,643

Current liabilities
 
—

 
5

 
—

 
1,510

 
1,515

Non-current liabilities
 
—

 
1,004

 
—

 
9,112

 
10,116

Non-controlling interests – Redeemable Partnership Units held by Brookfield
 
—

 
—

 
—

 
1,860

 
1,860

Non-controlling interests – in operating subsidiaries
 
—

 
—

 
—

 
2,771

 
2,771

Preferred unitholders
 
—

 
—

 
—

 
375

 
375

1.
Includes investments in all subsidiaries of our partnership under the equity method.
2.
Includes investments in all subsidiaries of the Holding LP, Brookfield Infrastructure Holdings (Canada) Inc., Brookfield Infrastructure US Holdings I Corporation, BIP Bermuda Holdings I Limited and Brookfield Infrastructure LLC under the equity method except for Brookfield Infrastructure US Holdings I Corporation’s investment in Brookfield Infrastructure LLC, which is presented on a combined basis as Brookfield Infrastructure LLC is a guarantor of the medium term notes issued in October 2012. For the three and six-month periods ended June 30, 2017 and 2016, the presentation of Brookfield Infrastructure US Holdings I Corporation’s investment in Brookfield Infrastructure LLC on a combined basis was equivalent to its presentation under the equity method.
3.
Includes elimination of intercompany transactions and balances necessary to present our partnership on a consolidated basis.
4.
Includes net income (loss) attributable to non-controlling interest—Redeemable Partnership Units held by Brookfield, general partner and limited partners.

26 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

12. PARTNERSHIP CAPITAL
As at June 30, 2017, our partnership’s capital structure was comprised of three classes of partnership units: limited partnership units, preferred units and general partnership units. Units entitle the holder to their proportionate share of distributions. Preferred units entitle the holder to cumulative preferential cash distributions in accordance with their terms. General partnership units entitle the holder the right to govern the financial and operating policies of our partnership. The Holding LP’s capital structure is composed of four classes of partnership units: Special Limited Partner Units, Holding LP Class A Preferred Units, Managing General Partner Units and Redeemable Partnership Units held by Brookfield.
On September 14, 2016, our partnership completed a three-for-two split of our units by way of a subdivision of units (the “Unit Split”), whereby unitholders received an additional one-half of a unit for each unit held, resulting in the issuance of approximately 115 million additional units. Our preferred units were not affected by the Unit Split. All historical per unit disclosures have been adjusted to effect for the change in units due to the Unit Split. The Managing General Partner Units, Special Limited Partner Units and Redeemable Partnership Units of the Holding LP were concurrently split to reflect the Unit Split.
(a) Special and Limited Partnership Capital
 
Special Limited Partner Units
 
Limited Partnership Units
 
Total
UNITS MILLIONS
As of and for the six-month period ended
June 30, 2017

 
As of and for the 12 month period ended
Dec. 31, 2016

 
As of and for the six-month period ended
June 30, 2017

 
As of and for the 12 month period ended
Dec. 31, 2016

 
As of and for the six-month period ended
June 30, 2017

 
As of and for the 12 month period ended
Dec. 31, 2016

Opening balance
1.6

 
1.6

 
259.4

 
243.2

 
261.0

 
244.8

Issued for cash
—

 
—

 
0.3

 
16.4

 
0.3

 
16.4

Repurchased and cancelled
—

 
—

 
—

 
(0.2
)
 
—

 
(0.2
)
Ending balance
1.6

 
1.6

 
259.7

 
259.4

 
261.3

 
261.0

The weighted average number of general partner units outstanding for the three and six-month periods ended June 30, 2017 was 1.6 million (2016: 1.6 million). The weighted average number of limited partnership units outstanding for the three and six-month periods ended June 30, 2017 was 259.6 million and 259.5 million, respectively (2016: 243.2 million for the three and six-month periods).
 
Special Limited Partner
 
Limited Partners
 
Total
US$ MILLIONS
As of and for the six-month period ended
June 30, 2017

 
As of and for the 12 month period ended
Dec. 31, 2016

 
As of and for the six-month period ended
June 30, 2017

 
As of and for the 12 month period ended
Dec. 31, 2016

 
As of and for the six-month period ended
June 30, 2017

 
As of and for the 12 month period ended
Dec. 31, 2016

Opening balance
$
19

 
$
19

 
$
4,215

 
$
3,716

 
$
4,234

 
$
3,735

Unit issuance
—

 
—

 
11

 
505

 
11

 
505

Repurchased and cancelled
—

 
—

 
—

 
(6
)
 
—

 
(6
)
Ending balance
$
19

 
$
19

 
$
4,226

 
$
4,215

 
$
4,245

 
$
4,234

In December 2016, Brookfield Infrastructure issued 15.6 million units at $32 per unit under shelf registrations in the U.S. and Canada. In total, $500 million of gross proceeds were raised through the issuance and $20 million in equity issuance costs were incurred.
In June 2010, we implemented a distribution reinvestment plan (the “Plan”) that allows eligible holders of our 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 six-month period ended June 30, 2017, our partnership issued less than 1 million units for proceeds of $11 million (2016: less than 1 million units for proceeds of $11 million) under the Plan.

Q2 2017 INTERIM REPORT 27

(b) Non-controlling interest – Redeemable Partnership Units held by Brookfield
 
Non-controlling interest –
Redeemable Partnership Units held
by Brookfield
UNITS MILLIONS
As of and for the six-month period ended
June 30, 2017

 
As of and for the 12 month period ended
Dec. 31, 2016

Opening balance
108.4

 
100.3

Issued for cash
—

 
8.1

Ending balance
108.4

 
108.4

The weighted average number of Redeemable Partnership Units outstanding for the three and six-month periods ended June 30, 2017 was 108.4 million (2016: 100.3 million for the three and six-month periods).
 
Non-controlling interest – 
Redeemable Partnership Units held 
by Brookfield
US$ MILLIONS
As of and for the six-month period ended
June 30, 2017

 
As of and for the 12 month period ended
Dec. 31, 2016

Opening balance
$
1,778

 
$
1,528

Unit issuance
—

 
250

Ending balance
$
1,778

 
$
1,778

In December 2016, Brookfield Infrastructure issued 8.1 million Redeemable Partnership Units to Brookfield for proceeds of $250 million.
c) Preferred Unitholders’ Capital
 
Preferred Units
UNITS MILLIONS
As of and for the six-month period ended
June 30, 2017

 
As of and for the 12 month period ended
Dec. 31, 2016

Opening balance
20.0

 
10.0

Issued for cash
12.0

 
10.0

Ending balance
32.0

 
20.0

 
Preferred Units
US$ MILLIONS
As of and for the six-month period ended
June 30, 2017

 
As of and for the 12 month period ended
Dec. 31, 2016

Opening balance
$
375

 
$
189

Unit issuance
220

 
186

Ending balance
$
595

 
$
375

In January 2017, Brookfield Infrastructure issued 12 million Series 7 Preferred Units, at C$25 per unit with a quarterly fixed distribution at a rate of 5.00% annually for the initial period ending March 31, 2022. In total, $225 million or C$300 million of gross proceeds were raised and $5 million in issuance costs were incurred.
In August 2016, Brookfield Infrastructure issued 10 million Series 5 Preferred Units at C$25 per unit with a quarterly fixed distribution at a rate of 5.35% annually for the initial period ending September 30, 2021. In total, $190 million or C$250 million of gross proceeds were raised and $4 million in issuance costs were incurred.

28 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

13. DISTRIBUTIONS
For the three and six-month periods ended June 30, 2017, distributions to partnership unitholders were $160 million and $320 million, respectively, or $0.435 and $0.87, respectively, per partnership unit (2016: $132 million and $264 million, respectively, or $0.38 and $0.76, respectively, per partnership unit).
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 $28 million and $56 million for the three and six-month periods ended June 30, 2017 (2016: $19 million and $38 million, respectively).
For the three and six-month periods ended June 30, 2017, our partnership declared distributions of $8 million and $14 million, respectively, or $0.25 and $0.49, respectively, per preferred unit on a prorated basis (2016: $2 million and $4 million, respectively, or $0.25 and $0.49, respectively, per preferred unit).
14. ACCUMULATED OTHER COMPREHENSIVE INCOME
a) Attributable to Limited Partners
US$ 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, 2017
$
957

 
$
(891
)
 
$
215

 
$
(130
)
 
$
(4
)
 
$
(30
)
 
$
619

 
$
736

Other comprehensive income (loss)
—

 
30

 
(138
)
 
24

 
2

 
—

 
(37
)
 
(119
)
Balance at June 30, 2017
$
957

 
$
(861
)
 
$
77

 
$
(106
)
 
$
(2
)
 
$
(30
)
 
$
582

 
$
617

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, 2016
$
1,042

 
$
(889
)
 
$
99

 
$
(140
)
 
$
(9
)
 
$
(13
)
 
$
465

 
$
555

Other comprehensive income (loss)
—

 
132

 
13

 
15

 
18

 
(1
)
 
(11
)
 
166

Other items
(99
)
 
(4
)
 
(5
)
 
9

 
—

 
—

 
—

 
(99
)
Balance at June 30, 2016
$
943

 
$
(761
)
 
$
107

 
$
(116
)
 
$
9

 
$
(14
)
 
$
454

 
$
622

b) Attributable to General Partner
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, 2017
$
7

 
$
(5
)
 
$
3

 
$
(1
)
 
$
—

 
$
—

 
$
3

 
$
7

Other comprehensive loss
—

 
—

 
(1
)
 
—

 
—

 
—

 
—

 
(1
)
Balance at June 30, 2017
$
7

 
$
(5
)
 
$
2

 
$
(1
)
 
$
—

 
$
—

 
$
3

 
$
6

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, 2016
$
7

 
$
(5
)
 
$
1

 
$
(1
)
 
$
—

 
$
—

 
$
2

 
$
4

Other comprehensive income
—

 
1

 
1

 
—

 
—

 
—

 
—

 
2

Other items
(1
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
Balance at June 30, 2016
$
6

 
$
(4
)
 
$
2

 
$
(1
)
 
$
—

 
$
—

 
$
2

 
$
5


Q2 2017 INTERIM REPORT 29

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

 
Unrealized
actuarial
losses

 
Equity
accounted
investments

 
Accumulated
other
comprehensive
income

Balance at January 1, 2017
$
417

 
$
(365
)
 
$
88

 
$
(58
)
 
$
(3
)
 
$
(9
)
 
$
261

 
$
331

Other comprehensive income (loss)
—

 
13

 
(58
)
 
10

 
—

 
—

 
(15
)
 
(50
)
Balance at June 30, 2017
$
417

 
$
(352
)
 
$
30

 
$
(48
)
 
$
(3
)
 
$
(9
)
 
$
246

 
$
281

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, 2016
$
447

 
$
(358
)
 
$
38

 
$
(61
)
 
$
(4
)
 
$
(2
)
 
$
194

 
$
254

Other comprehensive income (loss)
—

 
53

 
6

 
6

 
7

 
—

 
(4
)
 
68

Other items
(41
)
 
(2
)
 
(2
)
 
4

 
—

 
—

 
—

 
(41
)
Balance at June 30, 2016
$
406

 
$
(307
)
 
$
42

 
$
(51
)
 
$
3

 
$
(2
)
 
$
190

 
$
281


15. RELATED PARTY TRANSACTIONS
In the normal course of operations, Brookfield Infrastructure entered into the transactions below with related parties. The immediate parent of Brookfield Infrastructure is our 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 year, the General Partner, in its capacity as our partnership’s general partner, incurs director fees, a portion of which are charged at cost to our partnership in accordance with the limited partnership agreement. Less than $1 million in director fees were incurred during the three and six-month periods ended June 30, 2017 (2016: less than $1 million for the three and six-month periods).
b) Transactions with other related parties
Since inception, Brookfield Infrastructure has had a management agreement (the “Master Services Agreement”) with certain service providers (the “Service Provider”), which are wholly-owned subsidiaries of Brookfield.
Pursuant to the Master Services Agreement, on a quarterly basis, Brookfield Infrastructure pays a base management fee, referred to as the Base Management Fee, to the Service Provider equal to 0.3125% per quarter (1.25% annually) of the market value of our partnership. The Base Management Fee was $57 million and $105 million, respectively, for the three and six-month periods ended June 30, 2017 (2016: $38 million and $73 million, respectively).
For purposes of calculating the Base Management Fee, the market value of our partnership is equal to the aggregate value of all the outstanding units of our partnership (assuming full conversion of Brookfield’s Redeemable Partnership Units in the Holdings LP into units of our partnership), preferred units and securities of the other Service Recipients (as defined in Brookfield Infrastructure’s Master Services Agreement) that are not held by Brookfield Infrastructure, plus all outstanding third party debt with recourse to a Service Recipient, less all cash held by such entities.
Brookfield Infrastructure, from time to time, will place funds on deposit with Brookfield. As at June 30, 2017, Brookfield Infrastructure’s deposit balance with Brookfield was $4 million (December 31, 2016: $255 million) and earned interest of less than $1 million and $1 million, respectively, for the three and six-month periods ended June 30, 2017 (2016: less than $1 million for the three and six-month periods).
Brookfield Infrastructure’s North American district energy operation provides heating and cooling services 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 a wholly-owned subsidiary of Brookfield on market terms. For the three and six-month periods ended June 30, 2017, revenues of $1 million and $3 million, respectively, were generated (2016: less than $1 million for the three and six-month periods) and expenses of $1 million and $1 million were incurred, respectively (2016: less than $1 million for the three and six-month periods).

30 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Brookfield Infrastructure utilizes a wholly-owned subsidiary of Brookfield to negotiate and purchase insurance and assess the adequacy of insurance on behalf of our partnership and certain subsidiaries. During the three and six-month periods ended June 30, 2017, Brookfield Infrastructure paid less than $1 million for these services (2016: less than $1 million for the three and six-month periods).

Q2 2017 INTERIM REPORT 31

MANAGEMENT’S DISCUSSION AND ANALYSIS
AS OF JUNE 30, 2017 AND DECEMBER 31, 2016 AND
FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016
INTRODUCTION
The following Management’s Discussion and Analysis (“MD&A”) is the responsibility of management of Brookfield Infrastructure Partners L.P. (our “partnership” collectively with its subsidiary and operating entities “Brookfield Infrastructure”). This MD&A is dated August 14, 2017, and has been approved by the Board of Directors of the general partner of our 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,” “we,” “us” and “our” refer to Brookfield Infrastructure Partners L.P., and our 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 operations consist of utility, transport, energy and communications infrastructure businesses in North and South America, Asia Pacific 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 segments 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. (together with its affiliated entities other than us, “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 flows 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 (see “Reconciliation of Non-IFRS Financial Measures” on page 56 for more details). 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 the key value drivers for each of our operating segments. See “Segmented Disclosures” on page 38 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 general partner approved an 11% increase in our quarterly distribution to $0.435 per unit, which started with the distribution paid in March 2017. 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 $0.18 per unit to $0.435 per unit, a compound annual growth rate of 12%. We target 5% to 9% annual distribution growth in light of the per unit FFO growth we foresee in our operations. All historical per unit figures have been adjusted to effect for the change in units due to the three-for-two unit split completed during September 2016.

32 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Basis of Presentation
Our unaudited interim 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, 2016. Our unaudited interim 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.
Our partnership’s equity interests include units held by public unitholders and redeemable partnership units (“Redeemable Partnership Units”) held by Brookfield. Our 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, our partnership has the right, at its sole discretion, to satisfy the redemption request with our 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 our 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 segments, 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 segments on our 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 and joint ventures attributable to each of the above noted items, and (2) exclude the share of earnings (losses) 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 60 for a reconciliation of segment results to our 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 nine 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
We own a portfolio of infrastructure assets that are diversified by sector and by geography. We have a stable cash flow profile with approximately 95% of our Adjusted EBITDA supported by regulated or contracted revenues. In order to assist our unitholders and preferred unitholders in evaluating our performance and assessing our value, we group our businesses into operating segments based on similarities in their underlying economic drivers.
Our operating segments are summarized below:
 
 
 
 
 
Operating Segment
 
Asset Type
 
Primary Location
Utilities
 
 
 
 
Regulated or contractual businesses
which earn a return on their asset base
 
•   Regulated Transmission
 
•   North & South America
 
•   Regulated Distribution
 
•   Europe & South America
 
•   Regulated Terminal
 
•   Asia Pacific
 
 
 
Transport
 
 
 
 
Provide transportation for freight,
bulk commodities and passengers
 
•   Rail
 
•   Asia Pacific & South America
 
•   Toll Roads
 
•   South America & Asia Pacific
 
•   Ports
 
•   Europe, North America & Asia
 Pacific
 
 
 
 
 
Energy
 
 
 
 
Provide energy transmission, distribution and storage services
 
•   Energy Transmission, Distribution & Storage
 
•   North America
 
•   District Energy

 
•   North America & Asia Pacific
 
 
 
 
 
Communications Infrastructure
 
 
 
 
Provide essential services and
critical infrastructure to the
broadcasting and telecom sectors
 
•   Tower Infrastructure Operations
 
•   Europe

Q2 2017 INTERIM REPORT 33

REVIEW OF CONSOLIDATED FINANCIAL RESULTS
In this section we review our consolidated performance and financial position as of June 30, 2017 and December 31, 2016 and for the three and six-month periods ended June 30, 2017 and 2016. Further details on the key drivers of our operations and financial position are contained within the “Segmented Disclosures” section on page 38.
 
For the three-month period ended June 30
 
For the six-month period ended June 30
US$ MILLIONS, EXCEPT PER UNIT INFORMATION
2017

 
2016

 
2017

 
2016

Summary Statements of Operating Results
 
 
 
 
 
 
 
Revenues
$
934

 
$
462

 
$
1,590

 
$
916

Direct operating costs
(373
)
 
(198
)
 
(716
)
 
(400
)
General and administrative expenses
(59
)
 
(40
)
 
(110
)
 
(77
)
Depreciation and amortization expense
(206
)
 
(108
)
 
(326
)
 
(208
)
Interest expense
(107
)
 
(101
)
 
(201
)
 
(196
)
Share of earnings from investments in associates and joint ventures
36

 
106

 
59

 
110

Mark-to-market on hedging items
(29
)
 
32

 
(66
)
 
40

Other (expense) income
(5
)
 
7

 
19

 
62

Income tax expense
(56
)
 
(1
)
 
(68
)
 
—

Net income
135

 
159

 
181

 
247

Net income attributable to our partnership(1)
5

 
156

 
21

 
234

Net (loss) income per limited partnership unit
$
(0.06
)
 
$
0.39

 
$
(0.09
)
 
$
0.56

1.     Includes net income attributable to non-controlling interests—Redeemable Partnership Units held by Brookfield, general partner and limited partners.
Three-month periods ended June 30, 2017 and 2016
For the three-month period ended June 30, 2017 we reported net income of $135 million, of which $5 million is attributable to our partnership. This is compared to net income of $159 million in the prior year three-month period, of which $156 million was attributable to our partnership. Net income decreased as organic growth and acquisitions over the past 12 months, most notably our Brazilian regulated transmission business, were offset by one-time gains associated with the privatization of our Brazilian toll road operations in May 2016. and mark-to-market losses on hedging items during the current period.
Revenues for the three-month period ended June 30, 2017 were $934 million, an increase of $472 million compared to the same period in 2016. Our utilities segment contributed additional revenue of $330 million as a result of the recent acquisition of a Brazilian regulated gas transmission business, the benefit of inflation-indexation and various growth initiatives primarily at our U.K. regulated distribution operation. Our transport operations contributed an additional $163 million of revenue, mostly due to inflationary tariff increases across a number of our businesses, higher volumes at our Chilean toll roads and the contribution from recently completed acquisitions of toll roads in Peru and a ports business in Australia. Organic growth initiatives within our district energy business and the expansion of our North American gas storage business contributed incremental revenue of $28 million in our Energy segment. These items were partially offset by $15 million of foreign exchange, a $9 million impact of a regulatory rate reset at our Australian regulated terminal operation and a $25 million decrease due to our capital recycling initiatives completed over the last year.
Direct operating expenses for the three-month period ended June 30, 2017 were $373 million, which represents an increase of $175 million compared to the three-month period ended June 30, 2016. The current period includes $174 million of incremental costs related to recently completed acquisitions and $16 million of incremental costs resulting from expansion of our systems through our aforementioned organic growth initiatives. The increases have been partially offset by $6 million of foreign exchange and a $9 million reduction from costs associated with businesses we sold in 2016.
General and administrative expenses totaled $59 million for the three-month period ended June 30, 2017, an increase of $19 million compared to the same period in 2016. This line item primarily consists of the Base Management Fee that is paid to Brookfield, which is equal to 1.25% per annum of our partnership’s market value plus our preferred units and recourse net debt. The Base Management Fee increased from prior year due to a higher unit price and the issuances of medium-term notes and preferred units over the last 12 months, the proceeds of which were used to fund investments made in the last 12 months.
Depreciation and amortization expense for the three-month period ended June 30, 2017 was $206 million, an increase of $98 million compared to the prior year. Depreciation and amortization expense increased due to higher asset values resulting from our annual revaluation process, capital expenditures and acquisitions completed over the past year.

34 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Earnings from investments in associates and joint ventures were $36 million for the three-month period ended June 30, 2017, representing a decrease of $70 million compared to the same period in 2016. The decrease is predominantly a result of $98 million of income recognized on the privatization of our Brazilian toll road operations in May 2016. This decrease was partially offset by an additional $22 million of income from organic growth initiatives within our North American natural gas transmission operation, the benefits from inflationary tariff increases and an increased ownership stake in our Brazilian toll road operations, incremental earnings of $4 million associated with the acquisition of our Australian ports operations and $2 million due to foreign exchange.
Mark-to-market losses on hedging items for the three-month period ended June 30, 2017 were $29 million compared gains of $32 million for the three-month period ended June 30, 2016. Both the current and comparative periods consist primarily of revaluation mark-to-market movements relating to foreign exchange hedging activities at the corporate level, primarily relating to the Australian dollar, British pound and Euro.
Other expense for the three-month period ended June 30, 2017 totaled $5 million compared to other income of $7 million for the same period in 2016. The $12 million reduction in other income is primarily due to lower income earned on our financial asset program as we have disposed of a number of assets in the last year, using proceeds to fund new acquisitions.
Income tax expense for the three-month period ended June 30, 2017 was $56 million compared to $1 million for the same period in 2016. The increase is primarily due to acquisitions that occurred during the past year, as well as an increase in taxable income generated by our operations.
Six-month periods ended June 30, 2017 and 2016
For the six-month period ended June 30, 2017 we reported net income of $181 million, of which $21 million is attributable to our partnership. This is compared to net income of $247 million during the first six months of the prior year, of which $234 million was attributable to our partnership. Net income decreased as organic growth and acquisitions over the past 12 months, most notably our Brazilian regulated transmission business, were offset by one-time gains associated with our previously held toe-hold interest in Asciano Limited and the privatization of our Brazilian toll road operations in May 2016 during the prior period and mark-to-market losses on hedging items during the current period.
Revenues for the six-month period ended June 30, 2017 were $1,590 million, an increase of $674 million compared to the same period in 2016. Our utilities segment contributed additional revenue of $348 million as a result of the recent acquisition of a Brazilian regulated gas transmission business and the benefit of inflation-indexation and various growth initiatives primarily at our U.K. regulated distribution operation. Our transport operations contributed an additional $335 million of revenue, primarily due to higher iron ore prices, which resulted in a lower impact of tariff relief extended to one of our clients at our Australian rail operation, the benefit of inflationary tariff increases, the impact of higher volumes at our Chilean toll roads and the contribution from the recently completed acquisitions of toll roads in Peru as well as an Australian ports business. Organic growth initiatives within our district energy business and the expansion of our North American gas storage business contributed incremental revenue of $83 million relative to the prior year. These items were partially offset by $18 million of foreign exchange, a $19 million impact of a rate reset at our Australian regulated terminal operation and a $55 million decrease due to the sale of the European energy distribution and Ontario electricity transmission businesses in 2016.
Direct operating expenses for the six-month period ended June 30, 2017 were $716 million, which represent an increase of $316 million compared to the six-month period ended June 30, 2016. The current period includes $327 million of costs related to recently completed acquisitions and $21 million of incremental costs associated with the organic growth initiatives listed above. These increases have been partially offset by $6 million of foreign exchange and a $26 million reduction in direct operating expenses associated with businesses sold in the last 12 months.
General and administrative expenses totaled $110 million for the six-month period ended June 30, 2017, an increase of $33 million compared to the same period in 2016. This line item primarily consists of the Base Management Fee that is paid to Brookfield, which is equal to 1.25% per annum of our partnership’s market value plus our preferred units and recourse net debt. The Base Management Fee increased from prior year due to the issuance of medium-term notes and preferred units over the last 12 months, the proceeds from which were used to fund new investments, and a higher unit trading price.
Depreciation and amortization expense for the six-month period ended June 30, 2017 was $326 million, an increase of $118 million compared to the prior year. Depreciation and amortization expense increased due to higher asset values resulting from our annual revaluation process, capital expenditures and incremental charges associated with new businesses acquired in the last year.

Q2 2017 INTERIM REPORT 35

Earnings from investments in associates and joint ventures were $59 million for the six-month period ended June 30, 2017, representing a decrease of $51 million compared to the same period in 2016. The decrease is predominantly associated with $98 million of income recorded on the privatization of our Brazilian toll road operations in the prior year. This decrease was partially offset by an additional $35 million of income from organic growth initiatives within our North American natural gas transmission operations, the benefit of inflationary tariff increases and an increased ownership in our Brazilian toll road operations, $6 million of earnings associated with the recently acquired Australian ports business and $6 million due to foreign exchange.
Mark-to-market losses on hedging items for the six-month period ended June 30, 2017 were $66 million compared to gains of $40 million for the six-month period ended June 30, 2016. Both the current and comparative periods consist primarily of revaluation mark-to-market movements relating to foreign exchange hedging activities at the corporate level, primarily relating to the Australian dollar, British pound and Euro.
Other income for the first six months of 2017 totaled $19 million compared to $62 million for the same period in 2016. Other income includes interest income, dividend income and realized gains or losses on financial assets. The comparative period included a break-fee of $27 million and a $13 million dividend associated with our previously held toe-hold interest in Asciano Limited.
Income tax expense for the six-month period ended June 30, 2017 was $68 million compared to $nil for the six-month period ended June 30, 2016 primarily due to acquisitions made during the past year as well as an increase in taxable income generated by our operations.
US$ MILLIONS
Summary Statements of Financial Position Key Metrics
As of
June 30, 2017
 
December 31, 2016
Cash and cash equivalents
$
468

 
$
786

Total assets
28,304

 
21,275

Corporate borrowings
2,356

 
1,002

Non-recourse borrowings
7,751

 
7,324

Total liabilities
15,680

 
11,631

Limited Partners’ capital
4,253

 
4,611

General Partner capital
26

 
27

Non-controlling interest – Redeemable Partnership Units held by Brookfield
1,705

 
1,860

Non-controlling interest – in operating subsidiaries
6,045

 
2,771

Preferred unitholders
595

 
375

Total assets were $28,304 million at June 30, 2017, compared to $21,275 million at December 31, 2016, an increase of $7,029 million or 33%. The increase is primarily due to acquisitions completed over the past six months, most notably our Brazilian regulated gas transmission business and organic growth which have increased total assets by $6,577 million and a $452 million impact of foreign exchange, as most foreign currencies in which we operate appreciated against the U.S. dollar.
Corporate borrowings increased to $2,356 million at June 30, 2017, compared to $1,002 million at December 31, 2016. The $1,354 million increase is due to incremental draws of $774 million on our corporate credit facility, the issuance of $541 million of medium-term notes and a $39 million increase in our Canadian dollar denominated corporate debt due to the strengthening of the Canadian dollar against the U.S. dollar.
Non-recourse borrowings increased by $427 million to $7,751 million at June 30, 2017 from $7,324 million at December 31, 2016. The increase is attributable to a $218 million increase in debt balances denominated in foreign currencies due to the strengthening of foreign currencies against the U.S. dollar since December 31, 2016 and increased borrowings at our operating entities of $209 million during the period.
Partnership capital decreased by $514 million to $5,984 million at June 30, 2017. The decrease is due to distributions paid to our unitholders of $376 million and comprehensive loss attributable to the partnership of $149 million, partially offset by $11 million of units issued as part of our dividend reinvestment plan.

36 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Summary of Quarterly Results
Quarterly results for the eight most recent quarters are as follows:
US$ MILLIONS, EXCEPT PER UNIT AMOUNTS
2017
 
2016
 
2015
Three-month period ended
Q2

 
Q1

 
Q4

 
Q3

 
Q2

 
Q1

 
Q4

 
Q3

Revenues
$
934

 
$
656

 
$
677

 
$
522

 
$
462

 
$
454

 
$
455

 
$
468

Direct operating costs
(373
)
 
(343
)
 
(396
)
 
(267
)
 
(198
)
 
(202
)
 
(199
)
 
(199
)
Earnings from investment in associates and joint ventures
36

 
23

 
106

 
32

 
106

 
4

 
14

 
18

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest
(107
)
 
(94
)
 
(98
)
 
(98
)
 
(101
)
 
(95
)
 
(94
)
 
(90
)
Corporate costs
(59
)
 
(51
)
 
(44
)
 
(45
)
 
(40
)
 
(37
)
 
(35
)
 
(30
)
Valuation items
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value changes and other
(34
)
 
(13
)
 
76

 
70

 
39

 
63

 
(54
)
 
124

Depreciation and amortization
(206
)
 
(120
)
 
(113
)
 
(126
)
 
(108
)
 
(100
)
 
(82
)
 
(97
)
Income tax (expense) recovery
(56
)
 
(12
)
 
(30
)
 
15

 
(1
)
 
1

 
29

 
(11
)
Net income
135

 
46

 
178

 
103

 
159

 
88

 
34

 
183

Net income attributable to others
151

 
54

 
79

 
63

 
63

 
47

 
28

 
108

Net (loss) income attributable to limited partners
(16
)
 
(8
)
 
99

 
40

 
96

 
41

 
6

 
75

Net (loss) income per limited partnership unit
$
(0.06
)
 
$
(0.03
)
 
$
0.41

 
$
0.16

 
$
0.39

 
$
0.17

 
$
0.03

 
$
0.31

A significant driver of our results continues to be organic growth driven by inflation, volume growth, reinvested capital, and new investments, which add to the ongoing earnings profile of our current businesses. On a constant currency basis, these items contributed to consistent increases in our revenues, operating and interest costs, as well as depreciation expense. In addition to the aforementioned items, net income is impacted by fair value adjustments and other income and expenses.
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, energy and communications infrastructure. 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, whereby our partnership either controls or exercises significant influence or joint control over its investments. See “Discussion of Segment Reconciling Items” on page 63 for a reconciliation of segment results to our partnership’s statement of operating results in accordance with IFRS.
Utilities Operations
Our utilities segment is comprised of regulated utilities businesses, including regulated distribution (electricity and natural gas connections), regulated electricity and gas transmission businesses and a regulated terminal (coal export terminal). These businesses earn a return on a regulated or notionally stipulated asset base, which we refer to as rate base, or from revenues in accordance with long-term concession agreements. Our rate base increases 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. Concession agreements are typically for 30-year periods with inflation protected revenue streams with no material volume risk. Our diversified portfolio of assets allow us to mitigate exposure to any single regulatory regime. In addition, due to the franchise frameworks and economies of scale of our businesses, we often have significant competitive advantages in competing for projects to expand our rate base and earn incremental revenues. Accordingly, we expect this segment to produce stable revenue and margins overtime that should increase with investment of additional capital and inflation. Nearly all of our utility segment’s Adjusted EBITDA is supported by regulated or contractual revenues.
Our objectives for our utilities segment are to invest capital in the expansion of our rate base and in accordance with our concession agreements, as well as 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 and concession agreements. Our performance can be measured by the growth in our rate base, the return on our rate base, and the growth in our adjusted funds from operations (“AFFO”).

Q2 2017 INTERIM REPORT 37

Our utilities segment is comprised of the following:
Regulated Transmission
•
Approximately 2,000 kilometres of natural gas pipelines in Brazil
•
Approximately 11,200 kilometres of operating electricity transmission lines in North and South America along with an additional approximately 4,200 kilometres of greenfield electricity transmission developments in South America
Regulated Distribution
•
Approximately 2.8 million connections, predominantly electricity and natural gas, and approximately 600,000 installed smart meters
Regulated Terminal
•
One of the world’s largest metallurgical coal export terminals, with approximately 85 million tons per annum (“mtpa”) of capacity
Recent Developments
During the period, Brookfield Infrastructure, alongside institutional partners and a Brookfield-sponsored infrastructure fund, acquired an effective 28% interest in a Brazilian regulated gas transmission business, for total consideration by Brookfield Infrastructure of $1.6 billion (consortium total of $5.1 billion).
Subsequent to period end, our U.K. regulated distribution business was selected as the preferred bidder to acquire up to 2 million smart meters from a leading energy retailer. If our bid is successful, the transaction is expected to close by the end of the year and will require up to $500 million of capital (our share). 
During 2016, Brookfield Infrastructure, alongside institutional partners and a Brookfield-sponsored infrastructure fund, signed agreements to acquire an effective 28% interest in an Peruvian water irrigation system for an investment of approximately $15 million (our share). Completion of this transaction is subject to certain closing conditions and regulatory approvals.
Results of Operations
The following table presents our proportionate share of the key metrics of our utility segments:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
 
US$ MILLIONS
2017

 
2016

 
2017

 
2016

 
Rate base
$
5,553

 
$
3,961

 
$
5,553

 
$
3,961

 
Funds from operations (FFO)
168

 
100

 
268

 
200

 
Maintenance capital expenditures
(3
)
 
(3
)
 
(6
)
 
(6
)
 
Adjusted funds from operations (AFFO)
$
165

 
$
97

 
$
262

 
$
194

 
Return on rate base(1),(2)
11

%
11

%
11

%
11

%
1.
Return on rate base is Adjusted EBITDA divided by time weighted average rate base.
2.
Return on rate base excludes impact of connections revenues at our U.K. regulated distribution operation and a return of capital component at our Brazilian regulated gas transmission business.
For the three-month period ended June 30, 2017, our utilities segment generated FFO of $168 million compared with $100 million for the same period in the prior year. The current period results benefitted from the recent acquisition of a Brazilian regulated gas transmission business, higher connection activity at our U.K. regulated distribution business and the benefit of inflation-indexation and capital commissioned into the rate base. These increases were partially offset by a lower regulated return following the rate reset at our regulated terminal in July 2016, and the sale of a Canadian transmission business and the impact of foreign exchange.

38 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

The following table presents our utilities segment’s proportionate share of financial results:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Revenue
$
278

 
$
176

 
$
454

 
$
341

Costs attributable to revenues
(73
)
 
(42
)
 
(121
)
 
(73
)
Adjusted EBITDA
205

 
134

 
333

 
268

Interest expense
(29
)
 
(35
)
 
(58
)
 
(70
)
Other (expense) income
(8
)
 
1

 
(7
)
 
2

Funds from operations (FFO)
168

 
100

 
268

 
200

Depreciation and amortization
(57
)
 
(40
)
 
(89
)
 
(78
)
Deferred taxes and other items
(24
)
 
(34
)
 
(46
)
 
(53
)
Net income
$
87

 
$
26

 
$
133

 
$
69

The following table presents our proportionate Adjusted EBITDA and FFO for the businesses in this operating segment:
 
Adjusted EBITDA
 
FFO
 
For the three-month period ended June 30
 
For the six-month period ended June 30
 
For the three-month period ended June 30
 
For the six-month period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

 
2017

 
2016

 
2017

 
2016

Regulated Transmission
$
111

 
$
33

 
$
141

 
$
66

 
$
94

 
$
26

 
$
116

 
$
52

Regulated Distribution
69

 
63

 
140

 
126

 
58

 
52

 
118

 
104

Regulated Terminal
25

 
38

 
52

 
76

 
16

 
22

 
34

 
44

Total
$
205

 
$
134

 
$
333

 
$
268

 
$
168

 
$
100

 
$
268

 
$
200

 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Rate base, start of period
$
3,949

 
$
4,035

 
$
3,788

 
$
4,018

Acquisitions
1,498

 
—

 
1,498

 
—

Capital expenditures commissioned
50

 
53

 
104

 
107

Inflation and other indexation
4

 
16

 
20

 
39

Regulatory depreciation
(13
)
 
(13
)
 
(25
)
 
(25
)
Foreign exchange and other
65

 
(130
)
 
168

 
(178
)
Rate base, end of period
$
5,553

 
$
3,961

 
$
5,553

 
$
3,961

For the three-month period ended June 30, 2017, our regulated transmission operations generated Adjusted EBITDA of $111 million and FFO of $94 million compared to $33 million and $26 million, respectively, in the prior year. Adjusted EBITDA and FFO increased due to the initial contribution from our Brazilian regulated gas transmission business acquired in April, the benefit of inflation-indexation and additions to rate base, partially offset by the impact of the sale of a transmission business in Ontario in the prior year.
For the three-month period ended June 30, 2017, our regulated distribution operations generated Adjusted EBITDA of $69 million and FFO of $58 million, compared to $63 million and $52 million, respectively, in the 2016 period. Adjusted EBITDA and FFO increased as a result of the strong performance at our U.K. regulated distribution business driven by an increased rate base, higher connections income, the benefits of inflation-indexation and contributions from smart meters acquired in the last 12 months.
For the three-month period ended June 30, 2017, our regulated terminal reported Adjusted EBITDA of $25 million and FFO of $16 million compared to $38 million and $22 million, respectively, in the same period of 2016. Adjusted EBITDA and FFO decreased from the prior year as the benefits of inflation-indexation and a higher rate base were more than offset by the impact of the regulatory rate reset effective July 1, 2016 and the impact of foreign exchange.
Depreciation and amortization expenses increased to $57 million for the three-month period ended June 30, 2017, from $40 million for the same period in 2016. The increase of $17 million from 2016 is primarily due to the acquisition of our Brazilian regulated gas transmission business in April and incremental depreciation associated with additions to our regulated asset base and higher asset values from our annual revaluation process, partially offset by the impact of foreign exchange.

Q2 2017 INTERIM REPORT 39

Deferred taxes and other items for the three-month period ended June 30, 2017 were a loss of $24 million compared to $34 million for the same period in 2016. The variance is due to lower mark-to-market losses on hedging items at our U.K. regulated distribution and Australian regulated terminal operations in the current period.
The following table presents the roll-forward of our proportionate share of capital backlog and capital to be commissioned:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Capital backlog, start of period
$
862

 
$
645

 
$
761

 
$
452

Additional capital project mandates
146

 
180

 
286

 
513

Less: capital expenditures
(113
)
 
(96
)
 
(196
)
 
(223
)
Foreign exchange and other
15

 
(28
)
 
59

 
(41
)
Capital backlog, end of period
910

 
701

 
910

 
701

Construction work in progress
223

 
150

 
223

 
150

Total capital to be commissioned
$
1,133

 
$
851

 
$
1,133

 
$
851

As of June 30, 2017, total capital to be commissioned was $1,133 million compared to $851 million as of June 30, 2016. Our U.K. regulated distribution business, Chilean electricity transmission operations and Brazil transmission system are the largest contributors to capital to be commissioned with approximately $650 million, $280 million and $180 million, respectively.
Transport
Our transport segment 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 segment is comprised of businesses with price ceilings as a result of regulation, such as our rail 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 segment, revenues are generally stable and, in many cases, are supported by contracts or customer relationships. The diversification within our transport segment mitigates the impact of fluctuations in demand from any particular sector, commodity or customer. Approximately 80% of our transport segment’s Adjusted EBITDA is supported by contractual revenues.
Our objectives for our transport segment 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 deployed. Our performance can be measured by our revenue growth and our Adjusted EBITDA margin.
Our transport segment is comprised of the following:
Rail
•
Sole provider of rail network in south of Western Australia with approximately 5,500 kilometres of track and operator of approximately 4,800 kilometres of rail in South America
Toll Roads
•
Approximately 3,600 kilometres of motorways in Brazil, Chile, Peru and India
Ports
•
36 terminals in North America, U.K., Australia and across Europe

40 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Results of Operations
The following table presents our proportionate share of the key metrics of our transport segment:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
 
US$ MILLIONS
2017

 
2016

 
2017

 
2016

 
Growth capital expenditures
$
86

 
$
52

 
$
173

 
$
107

 
Adjusted EBITDA margin(1)
44

%
51

%
44

%
50

%
Funds from operations (FFO)
134

 
102

 
257

 
196

 
Maintenance capital expenditures
(31
)
 
(20
)
 
(63
)
 
(35
)
 
Adjusted funds from operations (AFFO)
$
103

 
$
82

 
$
194

 
$
161

 
1.
EBITDA margin is calculated net of construction revenues and costs of $1 million and $4 million which were incurred during three and six-month periods ended June 30, 2017 (2016 - $nil for the three and six-months periods) at our Peruvian toll road operation during construction.
For the three-month period ended June 30, 2017, our transport segment generated FFO of $134 million compared to $102 million for the same period in the prior year. FFO benefitted from inflationary tariff increases at our rail and toll road businesses, the expansion of our toll road operations and the contribution from our Australian ports business acquired in the third quarter of 2016, partially offset by the impact of foreign exchange.
The following table presents our transport segment’s proportionate share of financial results:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Revenues
$
395

 
$
291

 
$
770

 
$
560

Cost attributed to revenues
(224
)
 
(144
)
 
(434
)
 
(281
)
Adjusted EBITDA
171

 
147

 
336

 
279

Interest expense
(38
)
 
(40
)
 
(77
)
 
(74
)
Other income (expense)
1

 
(5
)
 
(2
)
 
(9
)
Funds from operations (FFO)
134

 
102

 
257

 
196

Depreciation and amortization
(75
)
 
(60
)
 
(151
)
 
(114
)
Deferred taxes and other items
(16
)
 
85

 
(32
)
 
74

Net income
$
43

 
$
127

 
$
74

 
$
156

The following table presents proportionate Adjusted EBITDA and FFO for each business in this operating segment:
 
Adjusted EBITDA
 
FFO
 
For the three-month period ended June 30
 
For the six-month period ended June 30
 
For the three-month period ended June 30
 
For the six-month period ended June 30
US$ MILLIONS
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Rail
$
69

 
$
74

 
$
133

 
$
144

 
$
52

 
$
58

 
$
100

 
$
112

Toll Roads
79

 
55

 
158

 
99

 
62

 
32

 
117

 
59

Ports
23

 
18

 
45

 
36

 
20

 
12

 
40

 
25

Total
$
171

 
$
147

 
$
336

 
$
279

 
$
134

 
$
102

 
$
257

 
$
196

For the three-month period ended June 30, 2017, our rail business generated Adjusted EBITDA of $69 million and FFO of $52 million compared to $74 million and $58 million, respectively, in the prior year. Adjusted EBITDA and FFO decreased as the benefits from increased tariffs and higher volumes from a stronger harvest in South America were more than offset by lower commodity volumes at our Australian rail operation and foreign exchange movements.
For the three-month period ended June 30, 2017, our toll roads contributed Adjusted EBITDA of $79 million and FFO of $62 million compared to $55 million and $32 million, respectively, in the 2016 period. The current period Adjusted EBITDA and FFO benefitted from a 13% increase in average tariffs, the contributions from an increased ownership in our Brazilian toll road business and our newly acquired portfolio in Peru, stronger traffic flows at our South American toll roads and the appreciation of LatAm currencies.

Q2 2017 INTERIM REPORT 41

For the three-month period ended June 30, 2017, our port operations reported Adjusted EBITDA of $23 million and FFO of $20 million compared to $18 million and $12 million, respectively, in 2016. Adjusted EBITDA and FFO increased versus the prior year due to higher volumes and new contracts signed at our U.K. port terminal and the contribution from our Australian ports business, which was acquired in August 2016.
Depreciation and amortization increased to $75 million for the three-month period ended June 30, 2017, from $60 million in the comparative period. The increase in depreciation expense arose from acquisitions completed over the past 12 months, incremental depreciation associated with expansionary capital expenditure programs, our annual revaluation process and the impact of foreign exchange.
Deferred taxes and other items for the three-month period ended June 30, 2017 were a loss of $16 million compared to a gain of $85 million for the same period in 2016. The decrease is predominantly a result of a non-recurring gain of $98 million on the privatization of our Brazilian toll road operations recorded in the prior year.
The following table presents the roll-forward of our proportionate share of capital backlog and capital to be commissioned:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Capital backlog, start of period
$
656

 
$
514

 
$
721

 
$
467

Additional capital project mandates
122

 
175

 
136

 
251

Less: capital expenditures
(86
)
 
(52
)
 
(173
)
 
(107
)
Foreign exchange and other
(22
)
 
50

 
(14
)
 
76

Capital backlog, end of period
670

 
687

 
670

 
687

Construction work in progress
305

 
212

 
305

 
212

Total capital to be commissioned
$
975

 
$
899

 
$
975

 
$
899

As of June 30, 2017, total capital to be commissioned was $975 million compared to $899 million as of June 30, 2016. Capital to be commissioned includes projects such as upgrading and expanding our rail networks, increasing and widening lanes on certain toll road routes and deepening berths and enhancing and modernizing existing infrastructure at our ports. Our South American toll road businesses and Brazilian rail operation are the largest contributors at approximately $740 million and $140 million, respectively.
Energy
Our energy segment is comprised of systems that provide transportation, storage and distribution services. Profitability is based on the volume and price achieved for the provision of these services. This operating segment is comprised of businesses that are subject to 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 segment 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 segment, revenues are typically contracted with varying durations and are relatively stable.
Our objectives for our energy segment 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 deployed. Our performance can be measured by our revenue growth, our Adjusted EBITDA margin and our growth in AFFO.
Our energy segment is comprised of the following:
Transmission, Distribution and Storage Operations
•
Approximately 15,000 kilometres of natural gas transmission pipelines
•
Approximately 600 billion cubic feet (“bcf”) of natural gas storage in the U.S. and Canada

42 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

District Energy Operations
•
Delivers heating and cooling to customers from centralized systems including heating plants capable of delivering 3,000,000 pounds per hour of steam heating capacity, centralized gas distribution and cogeneration for heating, cooling and energy, 261,000 tons of contracted cooling capacity, as well as servicing approximately 17,800 natural gas, water and wastewater connections
Recent Developments
Subsequent to period end, our North American natural gas transmission business raised $1.4 billion of corporate bonds with an average term of 7.5 years at an average rate of 4.625%. This follows the the repayment of the operation’s 2019 corporate notes in June, which was supported by a capital injection by the company’s shareholders (our share - $200 million).
Results of Operations
The following table presents our proportionate share of the key metrics of our energy segment:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
 
US$ MILLIONS
2017

 
2016

 
2017

 
2016

 
Growth capital expenditures
$
24

 
$
19

 
$
46

 
$
33

 
Adjusted EBITDA margin(1)
51

%
57

%
56

%
57

%
Funds from operations (FFO)
43

 
43

 
105

 
83

 
Maintenance capital expenditures
(18
)
 
(15
)
 
(25
)
 
(20
)
 
Adjusted funds from operations (AFFO)
$
25

 
$
28

 
$
80

 
$
63

 
1.
Adjusted EBITDA margin is Adjusted EBITDA divided by revenues.
For the three-month period ended June 30, 2017, our energy segment generated FFO of $43 million consistent with the same period in the prior year, as the benefits of higher transportation volumes and newly secured contracts at our North American natural gas transmission business and the recent expansion of our North American gas storage operation, were offset by the impact of the sale of the Channel Islands gas distribution business in the second quarter of 2016.
The following table presents our energy segment’s proportionate share of financial results:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Revenues
$
123

 
$
116

 
$
265

 
$
242

Cost attributed to revenues
(60
)
 
(50
)
 
(116
)
 
(104
)
Adjusted EBITDA
63

 
66

 
149

 
138

Interest expense
(23
)
 
(23
)
 
(50
)
 
(56
)
Other income
3

 
—

 
6

 
1

Funds from operations (FFO)
43

 
43

 
105

 
83

Depreciation and amortization
(35
)
 
(31
)
 
(68
)
 
(60
)
Deferred taxes and other items
(7
)
 
(2
)
 
(19
)
 
(3
)
Net income
$
1

 
$
10

 
$
18

 
$
20

The following table presents proportionate Adjusted EBITDA and FFO for each business in this operating segment:
 
Adjusted EBITDA
 
FFO
 
For the three-month period ended June 30
 
For the six-month period ended June 30
 
For the three-month period ended June 30
 
For the six-month period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

 
2017

 
2016

 
2017

 
2016

Energy Transmission, Distribution & Storage
$
50

 
$
54

 
$
124

 
$
114

 
$
32

 
$
32

 
$
84

 
$
62

District Energy
13

 
12

 
25

 
24

 
11

 
11

 
21

 
21

Total
$
63

 
$
66

 
$
149

 
$
138

 
$
43

 
$
43

 
$
105

 
$
83


Q2 2017 INTERIM REPORT 43

For the three-month period ended June 30, 2017, our energy transmission, distribution and storage operations generated Adjusted EBITDA of $50 million and FFO of $32 million compared to $54 million and $32 million, respectively, during the same period of 2016. Adjusted EBITDA decreased versus prior year as the benefit from higher transportation volumes predominately associated with newly secured contracts at our North American natural gas transmission operation and the contribution from our recently acquired North American gas storage business, were more than offset by the impact of the sale of a Channel Islands gas distribution business. FFO remained consistent with the same period in 2016 as the impact of the aforementioned items were offset by lower interest expense due to deleveraging activities completed at our North American natural gas transmission operation.
For the three-month period ended June 30, 2017, our district energy business generated Adjusted EBITDA of $13 million and FFO of $11 million, compared to $12 million and $11 million during the comparative period. Adjusted EBITDA increased due to incremental contribution from tuck-in acquisitions completed in the U.S. and Canada over the past 12 months. This increase was offset by higher interest expense associated with increased borrowings to fund growth opportunities, resulting in FFO being consistent with the prior year.
Depreciation and amortization increased to $35 million for the three-month period ended June 30, 2017, from $31 million in the comparative period. The increase is primarily due to additional depreciation as a result of recent acquisitions completed over the past 12 months.
Deferred taxes and other items for the three-month period ended June 30, 2017 were a loss of $7 million compared to a loss of $2 million for the same period in 2016. The variance is mainly attributable to higher taxable income from acquisitions completed during the past 12 months.
The following table presents the roll-forward of our proportionate share of capital backlog and capital to be commissioned:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Capital backlog, start of period
$
145

 
$
186

 
$
147

 
$
181

Additional capital project mandates
4

 
6

 
24

 
22

Less: capital expenditures
(24
)
 
(19
)
 
(46
)
 
(33
)
Foreign exchange and other
—

 
(3
)
 
—

 
—

Capital backlog, end of period
125

 
170

 
125

 
170

Construction work in progress
69

 
45

 
69

 
45

Total capital to be commissioned
$
194

 
$
215

 
$
194

 
$
215

As of June 30, 2017, total capital to be commissioned was $194 million compared to $215 million as of June 30, 2016. Capital commissioned includes approximately $115 million within our energy transmission, distribution and storage operations primarily relating to the first phase of the Gulf Coast Reversal project which is anchored by a 20-year, 385,000 dekatherms per day contract with a large LNG operator. District energy backlog totals $80 million and primarily relates to energy network and district water expansions in Australia.
Communications Infrastructure
Our communications infrastructure segment provides essential services and critical infrastructure to the media broadcasting and telecom sectors. These services and access to infrastructure are contracted on a long-term basis with tariff escalation mechanisms. Our telecommunications customers pay upfront and recurring fees to lease space on our towers to host their equipment. Our broadcasting customers pay us fees for transmitting television and radio content to end users.
The key objective for this segment is to capture benefit from increased demand for densification from mobile network operators and to acquire towers and other infrastructure that are non-core to such operators. Our performance can be measured by the growth in our Adjusted EBITDA.
The segment is comprised of approximately 7,000 multi-purpose towers and active rooftop sites and 5,000 kilometres of fibre backbone located in France.
Our operations generate stable, inflation-linked cash flows underpinned by long-term contracts (typically 10 years in telecommunications and five years in broadcasting) with large, prominent customers in France.

44 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Recent Developments
During the quarter, our French telecommunications infrastructure business secured its second fibre-to-the-home contract, bringing total contracted households to 195,000, representing a $50 million investment (our share).
During 2016, Brookfield Infrastructure, alongside a Brookfield-sponsored infrastructure fund, signed agreements to acquire an effective 29% interest in an Indian telecommunications business for an investment of approximately $200 million (our share). Completion of this transaction is subject to the merger of Reliance Communications with Aircel and other certain closing conditions and regulatory approvals.
Results of Operations
The following table presents our proportionate share of the key metrics of our communications infrastructure segment:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
 
US$ MILLIONS
2017

 
2016

 
2017

 
2016

 
Growth capital expenditures
$
8

 
$
6

 
$
17

 
$
11

 
Adjusted EBITDA margin(1)
56

%
58

%
56

%
53

%
Funds from operations (FFO)
19

 
19

 
38

 
38

 
Maintenance capital expenditures
(3
)
 
(3
)
 
(6
)
 
(5
)
 
Adjusted funds from operations (AFFO)
$
16

 
$
16

 
$
32

 
$
33

 
1.
Adjusted EBITDA margin is Adjusted EBITDA divided by revenues.
The following table presents our communications infrastructure segment’s proportionate share of financial results:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Revenues
$
41

 
$
40

 
$
80

 
$
83

Cost attributed to revenues
(18
)
 
(17
)
 
(35
)
 
(39
)
Adjusted EBITDA
23

 
23

 
45

 
44

Interest expense
(3
)
 
(3
)
 
(6
)
 
(5
)
Other expenses
(1
)
 
(1
)
 
(1
)
 
(1
)
Funds from operations (FFO)
19

 
19

 
38

 
38

Depreciation and amortization
(19
)
 
(19
)
 
(36
)
 
(38
)
Deferred taxes and other items
2

 
—

 
3

 
2

Net income
$
2

 
$
—

 
$
5

 
$
2

For the three-month period ended June 30, 2017, our communications infrastructure segment generated Adjusted EBITDA and FFO of $23 million and $19 million, respectively, were consistent with the prior year. The benefits of inflationary tariff increases and increased points-of-presence were offset by the impact of foreign exchange.
For the three-month period ended June 30, 2017, depreciation and amortization, and deferred taxes and other items were relatively consistent with the prior year at $19 million and $2 million, respectively.

Q2 2017 INTERIM REPORT 45

Corporate and other
The following table presents the components of Corporate and other, on a proportionate basis:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

General and administrative costs
$
(2
)
 
$
(2
)
 
$
(5
)
 
$
(4
)
Base management fee
(57
)
 
(38
)
 
(105
)
 
(73
)
Adjusted EBITDA
(59
)
 
(40
)
 
(110
)
 
(77
)
Other income
7

 
18

 
27

 
47

Financing costs
(17
)
 
(12
)
 
(29
)
 
(23
)
Funds from operations (FFO)
(69
)
 
(34
)
 
(112
)
 
(53
)
Deferred taxes and other items
(59
)
 
27

 
(97
)
 
40

Net loss
$
(128
)
 
$
(7
)
 
$
(209
)
 
$
(13
)
General and administrative costs for the three-month period ended June 30, 2017 were $2 million, consistent with the same period in 2016.
Pursuant to our Master Services Agreement, we pay Brookfield an annual base management fee equal to 1.25% of our market value plus net recourse debt. The base management fee has increased from prior the year due to an increase in our trading price and the impact of additional capital raised in the last 12 months to finance new investments.
Other income includes interest and distribution income as well as realized gains or losses earned on corporate financial assets. The decrease during the three-month period ended June 30, 2017 versus the comparative period is primarily attributable to the disposal of investments in financial assets over the past 12 months to fund new investments.
Corporate financing costs include interest expense and standby fees on our committed credit facility and corporate medium-term notes, less interest earned on cash balances. Financing costs have increased compared to the prior year due to higher borrowings used to fund newly acquired businesses.
Deferred taxes and other items for the three-month period ended June 30, 2017 were a loss of $59 million compared to a gain of $27 million in 2016. The variance is due to fair value changes recorded on our foreign currency hedging program as the currencies we hedge appreciated relative to the U.S. dollar during the current period.
SELECTED STATEMENTS OF OPERATING RESULTS AND FINANCIAL POSITION INFORMATION
To measure performance, we focus on net income, an IFRS measure, as well as certain non-IFRS measures, including, but not limited to, FFO, AFFO, Adjusted EBITDA and Adjusted Earnings, along with other measures. We define FFO as net income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. We define AFFO as FFO less capital expenditures required to maintain the current performance of our operations (maintenance capital expenditures). We define Adjusted EBITDA as net income excluding the impact of depreciation and amortization, interest expense, current and deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. We define Adjusted Earnings as net income attributable to our partnership, excluding the impact of depreciation and amortization expense from revaluing property, plant and equipment and the effects of purchase price accounting, mark-to-market on hedging items and disposition gains or losses.
Along with net income and other IFRS measures, FFO, AFFO, and Adjusted EBITDA are key measures of our financial performance that we use to assess the operating results and performance of our operations on a segmented basis. Adjusted Earnings is another measure of operating performance used to assess the ability of our businesses to generate recurring earnings, which allows users to better understand and evaluate financial performance of our partnership.
Since they are not calculated in accordance with, and do not have any standardized meanings prescribed by IFRS, FFO, AFFO, Adjusted EBITDA and Adjusted Earnings are unlikely to be comparable to similar measures presented by other issuers and have limitations as analytical tools. Specifically, our definition of FFO may differ from the definition used by other organizations, as well as the definition of funds from operations used by the Real Property Association of Canada (“REALPAC”) and the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), in part because the NAREIT definition is based on U.S. GAAP, as opposed to IFRS.
For further details regarding our use of FFO, AFFO, Adjusted EBITDA and Adjusted Earnings, as well as a reconciliation of net income to these measures, see the “Reconciliation of Non-IFRS Financial Measures” section of this MD&A.

46 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

US$ MILLIONS, EXCEPT PER UNIT INFORMATION
For the three-month
period ended June 30
 
For the six-month
period ended June 30
 
Key Metrics
2017

 
2016

 
2017

 
2016

 
Net income(1)
$
135

 
$
159

 
$
181

 
$
247

 
Net (loss) income per limited partnership unit(2)
(0.06
)
 
0.39

 
(0.09
)
 
0.56

 
Funds from operations (FFO)(3)
295

 
230

 
556

 
464

 
Per unit FFO(4)
0.80

 
0.67

 
1.51

 
1.35

 
Adjusted funds from operations (AFFO)(5)
240

 
189

 
456

 
398

 
Adjusted EBITDA(6)
403

 
330

 
753

 
652

 
Adjusted earnings(7)
135

 
109

 
275

 
273

 
Adjusted earnings per unit(4)
0.29

 
0.25

 
0.59

 
0.67

 
Distributions per unit
0.435

 
0.38

 
0.87

 
0.76

 
Payout ratio(8)
66

%
66

%
70

%
66

%

1.
Net income attributable to limited partners, non-controlling interest attributable to redeemable partnership units and the general partner.
2.
Average number of limited partnership units outstanding on a time weighted average basis for the three and six-month periods was 259.6 million and 259.5 million (2016: 243.2 million for the three and six-month periods).
3.
FFO is defined as net income excluding the impact of depreciation and amortization deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. Refer to the “Reconciliation of Non-IFRS Financial Measures” section of this MD&A for reconciliation from net income to FFO.
4.
Average units outstanding during the three and six-month periods of 369.6 million and 369.5 million (2016: 345.1 million for the three and six-month periods).
5.
AFFO is defined as FFO less maintenance capital expenditures. Refer to the “Reconciliation of Non-IFRS Financial Measures” section of this MD&A for reconciliation from net income to AFFO.
6.
Adjusted EBITDA is defined as net income excluding the impact of depreciation and amortization, interest expense, current and deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses. Refer to the “Reconciliation of Non-IFRS Financial Measures” section of this MD&A for reconciliation from net income to Adjusted EBITDA.
7.
Adjusted Earnings is defined as net income attributable to our partnership, excluding the impact of depreciation and amortization expense from revaluing property, plant and equipment and the effects of purchase price accounting, mark-to-market on hedging items and disposition gains or losses. Refer to the “Reconciliation of Non-IFRS Financial Measures” section of this MD&A for reconciliation from net income to Adjusted Earnings.
8.
Payout ratio is defined as distributions paid (inclusive of GP incentive and preferred unit distributions) divided by FFO.
For the three-month period ended June 30, 2017, our FFO totaled $295 million ($0.80 per unit) compared to FFO of $230 million ($0.67 per unit) for the same quarter in 2016. FFO and FFO per unit increased by 28% and 19%, respectively, reflecting the contribution from new investments and solid organic growth across a number of our businesses, partially offset by the impact of foreign exchange. Our partnership paid distributions of $0.435 per unit during the second quarter, an increase of 14% compared to the same period in 2016.

Q2 2017 INTERIM REPORT 47

The following tables present selected statement of operating results and financial position information by operating segment on a proportionate basis:
US$ MILLIONS
For the three-month
period ended June 30
 
For the six-month
period ended June 30
Statements of Operating Results
2017

 
2016

 
2017

 
2016

Net income (loss) by segment
 
 
 
 
 
 
 
Utilities
$
87

 
$
26

 
$
133

 
$
69

Transport
43

 
127

 
74

 
156

Energy
1

 
10

 
18

 
20

Communications Infrastructure
2

 
—

 
5

 
2

Corporate and other
(128
)
 
(7
)
 
(209
)
 
(13
)
Net income
$
5

 
$
156

 
$
21

 
$
234

Adjusted EBITDA by segment
 
 
 
 
 
 
 
Utilities
$
205

 
$
134

 
$
333

 
$
268

Transport
171

 
147

 
336

 
279

Energy
63

 
66

 
149

 
138

Communications Infrastructure
23

 
23

 
45

 
44

Corporate and other
(59
)
 
(40
)
 
(110
)
 
(77
)
Adjusted EBITDA
$
403

 
$
330

 
$
753

 
$
652

FFO by segment
 
 
 
 
 
 
 
Utilities
$
168

 
$
100

 
$
268

 
$
200

Transport
134

 
102

 
257

 
196

Energy
43

 
43

 
105

 
83

Communications Infrastructure
19

 
19

 
38

 
38

Corporate and other
(69
)
 
(34
)
 
(112
)
 
(53
)
FFO
$
295

 
$
230

 
$
556

 
$
464

US$ MILLIONS
As of
Statements of Financial Position
June 30, 2017

 
December 31, 2016

Total assets by segment
 
 
 
Utilities
$
6,078

 
$
4,605

Transport
6,412

 
6,160

Energy
3,062

 
3,032

Communications Infrastructure
982

 
933

Corporate and other
(894
)
 
(510
)
Total assets
$
15,640

 
$
14,220

Net debt by segment
 
 
 
Utilities
$
3,039

 
$
2,798

Transport
2,703

 
2,611

Energy
1,262

 
1,468

Communications Infrastructure
426

 
392

Corporate and other
2,226

 
453

Net debt
$
9,656

 
$
7,722

Partnership capital by segment
 
 
 
Utilities
$
3,039

 
$
1,807

Transport
3,709

 
3,549

Energy
1,800

 
1,564

Communications Infrastructure
556

 
541

Corporate and other
(3,120
)
 
(963
)
Partnership capital
$
5,984

 
$
6,498



48 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Invested Capital, which tracks the amount of capital that has been contributed to our partnership, is a measure we utilize to assess returns on capital deployed, relative to targeted returns. Investment decisions are based on, amongst other measures and factors, targeted returns on Invested Capital of 12% to 15% annually over the long-term. We measure return on Invested Capital as Adjusted Funds From Operations (“AFFO”) divided by the weighted average Invested Capital for the period.
We define Invested Capital as partnership capital removing the following items: non-controlling interest - in operating subsidiaries, retained earnings or deficit, accumulated other comprehensive income and ownership changes.
Weighted average Invested Capital for the six-month period ended June 30, 2017 was $6,503 million. See “Reconciliation of Non-IFRS Financial Measures” on page 56 for more details.
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 to our partnership. Any limitations existing at June 30, 2017 and December 31, 2016 were insignificant and would not adversely impact our ability to meet cash obligations.
Our group-wide liquidity at June 30, 2017 was $2.6 billion and consisted of the following:
 
As of
US$ MILLIONS
June 30, 2017
 
December 31, 2016
Corporate cash and cash equivalents
$
130

 
$
549

Committed corporate credit facility
1,975

 
1,975

Subordinate corporate credit facility
500

 
500

Draws under corporate credit facility
(774
)
 
—

Commitments under corporate credit facility
(47
)
 
(46
)
Proportionate cash retained in businesses
277

 
283

Proportionate availability under subsidiary credit facilities
584

 
634

Group-wide liquidity
$
2,645

 
$
3,895

At June 30, 2017, we believe that group-wide liquidity is sufficient to meet Brookfield Infrastructure’s present requirements. We finished the quarter with group-wide liquidity of $2.6 billion, down from $3.9 billion at December 31, 2016 primarily as a result of funds used for the acquisition of our Brazilian regulated gas transmission operation in April 2017.

Q2 2017 INTERIM REPORT 49

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. On a proportionate basis as of June 30, 2017, scheduled principal repayments over the next five years are as follows:
US$ MILLIONS
Average
Term
(years)
 
2017
 
2018
 
2019
 
2020
 
2021
 
Beyond
 
Total
 
Recourse borrowings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate borrowings
4
 
$
308

 
$
96

 
$
—

 
$
289

 
$
—

 
$
1,663

 
$
2,356

 
Total recourse borrowings
4
 
308

 
96

 
—

 
289

 
—

 
1,663

 
2,356

 
Non-recourse borrowings(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Utilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Regulated Distribution
10
 
—

 
—

 
—

 
120

 
—

 
1,157

 
1,277

 
Electricity Transmission
11
 
38

 
23

 
5

 
9

 
4

 
700

 
779

 
Regulated Terminal
5
 
—

 
—

 
58

 
163

 
316

 
510

 
1,047

 
 
9
 
38

 
23

 
63

 
292

 
320

 
2,367

 
3,103

 
Transport
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rail
6
 
6

 
13

 
24

 
116

 
120

 
820

 
1,099

 
Toll Roads
9
 
133

 
139

 
122

 
82

 
87

 
689

 
1,252

 
Ports
4
 
58

 
22

 
101

 
195

 
62

 
68

 
506

 
 
8
 
197

 
174

 
247

 
393

 
269

 
1,577

 
2,857

 
Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy Transmission, Distribution &
Storage
5
 
625

 
59

 
159

 
7

 
—

 
229

 
1,079

 
District Energy
10
 
21

 
11

 
2

 
31

 
3

 
155

 
223

 
 
6
 
646

 
70

 
161

 
38

 
3

 
384

 
1,302

 
Communications Infrastructure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Telecommunications Infrastructure
6
 
—

 
40

 
—

 
67

 
—

 
338

 
445

 
 
6
 
—

 
40

 
—

 
67

 
—

 
338

 
445

 
Total non-recourse borrowings(1)
8
 
881

 
307

 
471

 
790

 
592

 
4,666

 
7,707

 
Total borrowings(2)
7
 
$
1,189

 
$
403

 
$
471

 
$
1,079

 
$
592

 
$
6,329

 
$
10,063

 
Cash retained in businesses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Utilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
64

 
Transport
 
 
 
 
 
 
 
 
 
 
 
 
 
 
154

 
Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40

 
Communications Infrastructure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19

 
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
130

 
Total cash retained
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
407

 
Net debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Utilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
3,039

 
Transport
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,703

 
Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,262

 
Communications Infrastructure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
426

 
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,226

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
9,656

 
Total net debt
 
 
12

%
4

%
5

%
10

%
6

%
63

%
100

%

1.
Represents non-recourse debt to Brookfield Infrastructure as the holders have recourse only to the underlying operations.
2.
As of June 30, 2017, approximately 24% 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 17% of our total borrowings. Excluding working capital and capital expenditure facilities, floating rate debt maturities approximate 16% of our total borrowings, inclusive of the impact of interest rate swaps.
Our debt has an average term of seven years. On a proportionate basis, our net debt-to-capitalization ratio as of June 30, 2017 was 56%. The weighted average cash interest rate is 4.6% for the overall business (2016: 5.1%), in which our utilities, transport, energy, communications infrastructure and corporate segments were 4.0%, 6.6%, 6.3%, 2.6% and 3.2%, respectively (2016: 4.1%, 7.4%, 7.4%, 2.6% and 2.6%, respectively).

50 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

Proportionate debt can be reconciled to consolidated debt as follows:
 
As of
US$ MILLIONS
June 30, 2017
 
December 31, 2016
Consolidated debt
$
10,107

 
$
8,236

Add: proportionate share of debt of investments in associates:
 
 
 
Utilities
779

 
727

Transport
1,076

 
1,083

Energy
927

 
1,146

Communications Infrastructure
445

 
410

Less: borrowings attributable to non-controlling interest
(2,807
)
 
(2,619
)
Premium on debt and cross currency swaps
(464
)
 
(429
)
Proportionate debt
$
10,063

 
$
8,554

CONTRACTUAL OBLIGATIONS
The table below outlines Brookfield Infrastructure’s contractual obligations as at June 30, 2017:
 
Payments due by period
US$ MILLIONS
Less than
1 year
 
1-2 years
 
2-5 years
 
5+ years
 
Total
contractual
cash flows
Accounts payable and other liabilities
$
766

 
$
37

 
$
17

 
$
112

 
$
932

Corporate borrowing
308

 
96

 
637

 
1,315

 
2,356

Non-recourse borrowing
240

 
459

 
1,928

 
5,120

 
7,747

Financial liabilities
276

 
67

 
68

 
947

 
1,358

Interest expense:
 
 
 
 
 
 
 
 
 
Corporate borrowing
45

 
48

 
118

 
37

 
248

Non-recourse borrowing
358

 
351

 
866

 
1,346

 
2,921

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 of our partnership plus net recourse debt. This fee is estimated to be approximately $228 million per year based on the June 30, 2017 market capitalization of our partnership plus preferred units and recourse corporate net debt.
An integral part of our partnership’s strategy is to participate with institutional investors in Brookfield-sponsored private infrastructure funds that target acquisitions that suit Brookfield Infrastructure’s profile. In the normal course of business, our partnership has made commitments to Brookfield-sponsored private infrastructure funds to participate in these target acquisitions in the future, if and when identified.
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

Q2 2017 INTERIM REPORT 51

The following table presents our hedged position in foreign currencies as of June 30, 2017:
 
Net Investment Hedges
 
US$ MILLIONS
USD
 
AUD
 
GBP
 
BRL
 
CLP
 
CAD
 
EUR
 
COP
 
PEN
 
INR
 
Equity Investment – US$
$
(211
)
 
$
1,523

 
$
1,049

 
$
3,047

 
$
93

 
$
(500
)
 
$
757

 
$
65

 
$
119

 
$
42

 
FX contracts – US$
3,424

 
(1,523
)
 
(1,049
)
 
—

 
—

 
(95
)
 
(757
)
 
—

 
—

 
—

 
Net unhedged – US$
$
3,213

 
$
—

 
$
—

 
$
3,047

 
$
93

 
$
(595
)
 
$
—

 
$
65

 
$
119

 
$
42

 
% of equity investment hedged
N/A

%
100

%
100

%
—

%
—

%
N/A

%
100

%
—

%
—

%
—

%
At June 30, 2017, we had hedges in place to convert a total of 54% of our net equity investment to U.S. Dollars. For the three months ended June 30, 2017, we recorded losses in comprehensive income of $76 million related to these contracts.
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 period:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Funds from operations (FFO)
$
295

 
$
230

 
$
556

 
$
464

Maintenance capital expenditures
(55
)
 
(41
)
 
(100
)
 
(66
)
Funds available for distribution (AFFO)
240

 
189

 
456

 
398

Distributions paid
(196
)
 
(153
)
 
(390
)
 
(306
)
Funds available for reinvestment
44

 
36

 
66

 
92

Growth capital expenditures
(231
)
 
(173
)
 
(432
)
 
(374
)
Debt funding of growth capex
134

 
92

 
219

 
214

Asset level repayments
(26
)
 
—

 
(77
)
 
(7
)
New investments, net of disposals
(1,572
)
 
(502
)
 
(1,650
)
 
(519
)
Draws on corporate credit facility, net of repayments
319

 
636

 
774

 
787

Partnership unit issuances
5

 
2

 
11

 
5

Proceeds from debt issuance
309

 
—

 
537

 
—

Proceeds from preferred units issuance
—

 
—

 
220

 
—

Changes in working capital and other
(67
)
 
(15
)
 
(93
)
 
110

Change in proportionate cash
(1,085
)
 
76

 
(425
)
 
308

Opening, proportionate cash
1,492

 
775

 
832

 
543

Closing, proportionate cash
$
407

 
$
851

 
$
407

 
$
851





52 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

The following table presents the components of growth capital expenditures by operating segment:

 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Growth capital expenditures by segment
 
 
 
 
 
 
 
Utilities
$
113

 
$
96

 
$
196

 
$
223

Transport
86

 
52

 
173

 
107

Energy
24

 
19

 
46

 
33

Communications Infrastructure
8

 
6

 
17

 
11

 
$
231

 
$
173

 
$
432

 
$
374

Growth capital expenditures for the three-month period ended June 30, 2017 were $231 million, an increase from $173 million in the same period in 2016. The increase in growth capital expenditures reflects higher connections activity and the investment in our smart meter program at our U.K. regulated distribution business and increased ownership in our South American toll road business, partially offset by the impact of depreciation of most foreign currencies in which we operate versus the U.S. dollar.
The following table presents the components of maintenance capital expenditures by operating segment:
 
 
 
Actual Capex
 
Quarterly Estimated
Maintenance Capex
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
Low

 
High

 
2017

 
2016

 
2017

 
2016

Maintenance capital expenditures by segment
 
 
 
 
 
 
 
 
 
 
 
Utilities
$
3

 
$
4

 
$
3

 
$
3

 
$
6

 
$
6

Transport
31

 
34

 
31

 
20

 
63

 
35

Energy
16

 
19

 
18

 
15

 
25

 
20

Communications Infrastructure
1

 
2

 
3

 
3

 
6

 
5

 
$
51

 
$
59

 
$
55

 
$
41

 
$
100

 
$
66

We estimate annual maintenance capital expenditures to be $10-15 million, $125-135 million, $65-75 million, and $5-10 million for our utilities, transport, energy, and communication infrastructure segments, respectively, for a total range between $205-235 million. For the three and six-month periods ended June 30, 2017, our maintenance capital expenditures were below our quarterly estimated range, primarily due to seasonality of spending in our energy segment which occur in the second and third quarters.
PARTNERSHIP CAPITAL
The total number of partnership units in the Holding LP outstanding was comprised of the following:
 
As of
 
June 30, 2017
 
December 31, 2016
Redeemable Partnership Units, held by Brookfield
108,401,992

 
108,401,992

Special Limited Partner Units
1,600,410

 
1,600,410

Managing General Partner Units
259,733,735

 
259,450,045

Total
369,736,137

 
369,452,447

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 limited partnership units exceed $0.203 per quarter, the incentive distribution rights entitle the special limited partner to 15% of incremental distributions above this threshold to $0.22 per unit.
To the extent that distributions on limited partnership units exceed $0.22 per unit, the incentive distribution rights entitled the special limited partner to 25% of incremental distributions above this threshold. During the three and six-month periods ended June 30, 2017, an incentive distribution of $28 million and $56 million was paid to the general partner (2016: $19 million and $38 million respectively).

Q2 2017 INTERIM REPORT 53

CAPITAL MANAGEMENT
Our partnership’s approach to capital management is focused on maximizing returns to unitholders and ensuring capital is deployed in a manner consistent with achieving our investment return objectives.

Invested Capital, which tracks the amount of capital that has been contributed to our partnership, is a measure we utilize to assess returns on capital deployed, relative to targeted returns. Investment decisions are based on, amongst other measures and factors, targeted returns on Invested Capital of 12% to 15% annually over the long-term. We measure return on Invested Capital as Adjusted Funds From Operations (“AFFO”) divided by the weighted average Invested Capital for the period.

We define Invested Capital as partnership capital removing the following items: non-controlling interest - in operating subsidiaries, retained earnings or deficit, accumulated other comprehensive income and ownership changes. Weighted average Invested Capital for the six-month period ended June 30, 2017 was $6,503 million. See “Reconciliation of Non-IFRS Financial Measures” on page 56 for more details.
Our partnership has met its investment return objectives with return on Invested Capital of 14% for the six month-period ended June 30, 2017.

RELATED PARTY TRANSACTIONS
In the normal course of operations, Brookfield Infrastructure entered into the transactions below with related parties. The immediate parent of Brookfield Infrastructure is our 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 year, the General Partner, in its capacity as our partnership’s general partner, incurs director fees, a portion of which are charged at cost to our partnership in accordance with the limited partnership agreement. Less than $1 million in director fees were incurred during the three and six-month periods ended June 30, 2017 (2016: less than $1 million for the three and six-month periods).
b) Transactions with other related parties
Since inception, Brookfield Infrastructure has had a management agreement (the “Master Services Agreement”) with certain service providers (the “Service Provider”), which are wholly-owned subsidiaries of Brookfield.
Pursuant to the Master Services Agreement, on a quarterly basis, Brookfield Infrastructure pays a base management fee, referred to as the Base Management Fee, to the Service Provider equal to 0.3125% per quarter (1.25% annually) of the market value of our partnership. The Base Management Fee was $57 million and $105 million, respectively, for the three and six-month periods ended June 30, 2017 (2016: $38 million and $73 million, respectively).
For purposes of calculating the Base Management Fee, the market value of our partnership is equal to the aggregate value of all the outstanding units of our partnership (assuming full conversion of Brookfield’s Redeemable Partnership Units in the Holdings LP into units of our partnership), preferred units and securities of the other Service Recipients (as defined in Brookfield Infrastructure’s Master Services Agreement) that are not held by Brookfield Infrastructure, plus all outstanding third party debt with recourse to a Service Recipient, less all cash held by such entities.
Brookfield Infrastructure, from time to time, will place funds on deposit with Brookfield. As at June 30, 2017, Brookfield Infrastructure’s deposit balance with Brookfield was $4 million (December 31, 2016: $255 million) and earned interest of less than $1 million and $1 million, respectively, for the three and six-month periods ended June 30, 2017 (2016: less than $1 million for the three and six-month periods).
Brookfield Infrastructure’s North American district energy operation provides heating and cooling services 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 a wholly-owned subsidiary of Brookfield on market terms. For the three and six-month periods ended June 30, 2017, revenues of $1 million and $3 million, respectively, were generated (2016: less than $1 million for the three and six-month periods) and expenses of $1 million and $1 million were incurred, respectively (2016: less than $1 million for the three and six-month periods).

Q2 2017 INTERIM REPORT 54

Brookfield Infrastructure utilizes a wholly-owned subsidiary of Brookfield to negotiate and purchase insurance and assess the adequacy of insurance on behalf of our partnership and certain subsidiaries. During the three and six-month periods ended June 30, 2017, Brookfield Infrastructure paid less than $1 million for these services (2016: less than $1 million for the three and six-month periods).
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
We, 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 June 30, 2017, letters of credit issued by our subsidiaries amounted to $47 million (2016: $46 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
We focus on FFO to measure operating performance, along with IFRS measures such as net income. In addition, we also assess AFFO, Adjusted EBITDA, Adjusted Earnings and Invested Capital.
These measures are not calculated in accordance with and do not have any standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.
FFO, AFFO, Adjusted EBITDA, Adjusted Earnings and Invested Capital have limitations as analytical tools. Therefore FFO, AFFO, Adjusted EBITDA, Adjusted Earnings and Invested Capital should not be considered as the sole measures of our performance and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under IFRS.
Net income attributable to our partnership is the most directly comparable IFRS measure to FFO, AFFO, Adjusted EBITDA and Adjusted Earnings. Partnership capital is the most directly comparable IFRS measure to Invested Capital. We urge you to review the IFRS financial measures within the MD&A and to not rely on any single financial measure to evaluate our partnership.
We define FFO as net income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses.
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;
•
FFO does not include deferred income taxes, which may become payable if we own our assets for a long period of time; and
•
FFO does not include breakage and transaction costs or non-cash valuation gains, losses and impairment charges.
FFO is a key measure that we use to evaluate the performance of our operations and forms the basis for our partnership’s distribution policy.
When viewed along with our IFRS results, we believe that FFO provides a more complete understanding of factors and trends affecting our underlying operations. FFO allows us to evaluate our businesses on the basis of cash return on invested capital by removing the effect of non-cash and other items.

Q2 2017 INTERIM REPORT 55

We add back depreciation and amortization to remove the implication that our assets decline in value over time since we believe that the value of most of our assets will be sustained over time, provided we make all necessary maintenance expenditures. We add back deferred income taxes because we do not believe this item reflects the present value of the actual cash tax obligations we will be required to pay, particularly if our operations are held for a long period of time. We add back non-cash valuation gains or losses recorded in net income as they are non-cash and indicate a point-in-time approximation of value on items we consider long-term. We also add back breakage and transaction costs as they are capital in nature.
In addition, we focus on adjusted funds from operations or AFFO, which is defined as FFO less capital expenditures required to maintain the current performance of our operations (maintenance capital expenditures). While FFO provides a basis for assessing current operating performance, it does not take into consideration the cost to sustain the operating performance of our partnership’s asset base. In order to assess the long-term, sustainable operating performance of our businesses, we observe that in addition to FFO, investors use AFFO by taking into account the impact of maintenance capital expenditures.
We also focus on Adjusted EBITDA which we define as net income excluding the impact of depreciation and amortization, interest expense, current and deferred income taxes, breakage and transaction costs and non-cash valuation gains or losses. Adjusted EBITDA provides a supplemental understanding of the performance of our business and enhanced comparability across periods and relative to our peers. Adjusted EBITDA excludes the impact of interest expense and current income taxes to remove the effect of the current capital structure and tax profile in assessing the operating performance of our businesses.
Adjusted Earnings is a measure that can be used to evaluate the performance of our operations, defined as net income attributable to our partnership, excluding any incremental depreciation and amortization expense associated with the revaluation of our property, plant and equipment and the impact of purchase price accounting, mark-to-market on hedging items and disposition gains or losses. While we believe that maintenance capital expenditures are the best measure of the cost to preserve our revenue generating capability, we acknowledge that investors may view historical depreciation as a more relevant proxy. Adjusted Earnings also excludes mark-to-market on hedging items recorded in net income or disposition gains or losses as we believe these items are not reflective of the ongoing performance of our underlying operations.
When viewed with our IFRS results, we believe that Adjusted Earnings provides a supplemental understanding of the performance of our underlying operations and also gives users enhanced comparability of our ongoing performance relative to peers in certain jurisdictions and across periods.
Invested Capital, which tracks the amount of capital that has been contributed to our partnership, is a measure we utilize to assess returns on capital deployed, relative to targeted returns. Investment decisions are based on, amongst other measures and factors, targeted returns on Invested Capital of 12% to 15% annually over the long-term. We measure return on Invested Capital as Adjusted Funds From Operations (“AFFO”) divided by the weighted average Invested Capital for the period. We define Invested Capital as partnership capital removing the following items: non-controlling interest - in operating subsidiaries, retained earnings or deficit, accumulated other comprehensive income and ownership changes.
The following table reconciles net income attributable to our partnership, the most directly comparable IFRS measure, to FFO and AFFO, non-IFRS financial metrics:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS, EXCEPT PER UNIT AMOUNTS(1)
2017

 
2016

 
2017

 
2016

Net income attributable to partnership(2)
$
5

 
$
156

 
$
21

 
$
234

Add back or deduct the following:
 
 
 
 
 
 
 
Depreciation and amortization
186

 
150

 
344

 
290

Deferred income taxes
5

 
(11
)
 
8

 
(13
)
Mark-to-market on hedging items
39

 
(24
)
 
85

 
(9
)
Valuation losses (gains) and other
60

 
(41
)
 
98

 
(38
)
FFO
295

 
230

 
556

 
464

Maintenance capital expenditures
(55
)
 
(41
)
 
(100
)
 
(66
)
AFFO
$
240

 
$
189

 
$
456

 
$
398

1.
Please see “Reconciliation of Operating Segments” for a detailed reconciliation of Brookfield Infrastructure’s proportionate results to our partnership’s Consolidated Statements of Operating Results.
2.
Includes net income attributable to non-controlling interest—Redeemable Partnership Units held by Brookfield, general partner and limited partners.

56 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

For the three-month period ended June 30, 2017, the difference between net income attributable to partnership and FFO is due to depreciation and amortization expenses of $186 million (2016: $150 million), deferred tax expense of $5 million (2016: deferred tax recovery of $11 million), mark-to-market losses on hedging items of $39 million (2016: gains of $24 million) and valuation losses and other of $60 million (2016: gains of $41 million).
For the six-month period ended June 30, 2017, the difference between net income attributable to partnership and FFO is due to depreciation and amortization expenses of $344 million (2016: $290 million), deferred tax expense of $8 million (2016: deferred tax recovery of $13 million), mark-to-market losses on hedging items of $85 million (2016: gains of $9 million) and valuation losses and other of $98 million (2016: gains of $38 million).
The following table reconciles net income attributable to our partnership, the most directly comparable IFRS measure, to Adjusted EBITDA, a non-IFRS measure. Adjusted EBITDA is presented based on our proportionate share of results in operations accounted for using the consolidation and the equity methods.
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS(1)
2017

 
2016

 
2017

 
2016

Net income attributable to partnership(2)
$
5

 
$
156

 
$
21

 
$
234

Add back or deduct the following:
 
 
 
 
 
 
 
Depreciation and amortization
186

 
150

 
344

 
290

Deferred income taxes
5

 
(11
)
 
8

 
(13
)
Mark-to-market on hedging items and other
99

 
(65
)
 
183

 
(47
)
Interest expense
110

 
113

 
220

 
228

Other income
(2
)
 
(13
)
 
(23
)
 
(40
)
Adjusted EBITDA
$
403

 
$
330

 
$
753

 
$
652

1.
Please see “Reconciliation of Operating Segments” for a detailed reconciliation of Brookfield Infrastructure’s proportionate results to our partnership’s Consolidated Statements of Operating Results.
2.
Includes net income attributable to non-controlling interest—Redeemable Partnership Units held by Brookfield, general partner and limited partners.
For the three-month period ended June 30, 2017, the difference between net income attributable to partnership and Adjusted EBITDA is primarily due to depreciation and amortization expenses of $186 million (2016: $150 million) and interest expense of $110 million (2016: $113 million).
For the six-month period ended June 30, 2017, the difference between net income attributable to partnership and Adjusted EBITDA is primarily due to depreciation and amortization expenses of $344 million (2016: $290 million) and interest expense of $220 million (2016: $228 million).
The following table reconciles net income attributable to our partnership, the most directly comparable IFRS measure, to Adjusted Earnings, a non-IFRS financial metric:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS
2017

 
2016

 
2017

 
2016

Net income attributable to partnership(1)
$
5

 
$
156

 
$
21

 
$
234

Add back or deduct the following:
 
 
 
 
 
 
 
Depreciation and amortization expense due to application of revaluation model and acquisition accounting
91

 
75

 
169

 
146

Mark-to-market on hedging items
39

 
(24
)
 
85

 
(9
)
Gains on sale of subsidiaries or ownership changes
—

 
(98
)
 
—

 
(98
)
Adjusted earnings
$
135

 
$
109

 
$
275

 
$
273

1.
Includes net income attributable to non-controlling interest—Redeemable Partnership Units held by Brookfield, general partner and limited partners.

Q2 2017 INTERIM REPORT 57

For the three-month period ended June 30, 2017, the difference between net income attributable to partnership and Adjusted Earnings is due to depreciation and amortization expense attributable to the application of the revaluation model and acquisition accounting of $91 million (2016: $75 million) and mark-to-market losses on hedging items of $39 million (2016: gains of $24 million). Adjusted Earnings increased from the prior year primarily due to acquisitions completed over the past 12 months, most notably the acquisition of our Brazilian regulated gas transmission business, and a non-recurring gain of $98 million related to our toll roads business during the comparative period.
For the six-month period ended June 30, 2017, the difference between net income attributable to partnership and Adjusted Earnings is due to depreciation and amortization expense attributable to application of the revaluation model and acquisition accounting of $169 million (2016: $146 million) and mark-to-market losses on hedging items of $85 million (2016: gains of $9 million). Adjusted Earnings increased from the prior year primarily due to acquisitions completed over the past 12 months, most notably the acquisition of our Brazilian regulated gas transmission business, and a non-recurring gain of $98 million related to our toll roads business during the comparative period.
Net income per limited partnership unit is the most directly comparable IFRS measure for per unit FFO and Adjusted Earnings per unit.
The following table reconciles net (loss) income per limited partnership unit, the most directly comparable IFRS measure, to FFO per unit, a non-IFRS financial metric:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS, EXCEPT PER UNIT AMOUNTS(1)
2017

 
2016

 
2017

 
2016

Net (loss) income per limited partnership unit(2)
$
(0.06
)
 
$
0.39

 
$
(0.09
)
 
$
0.56

Add back or deduct the following:
 
 
 
 
 
 
 
Depreciation and amortization
0.50

 
0.43

 
0.93

 
0.84

Deferred income taxes
0.01

 
(0.03
)
 
0.02

 
(0.04
)
Mark-to-market on hedging items
0.11

 
(0.07
)
 
0.23

 
(0.03
)
Valuation losses (gains) and other
0.24

 
(0.05
)
 
0.42

 
0.02

Per unit FFO(3)
$
0.80

 
$
0.67

 
$
1.51

 
$
1.35


1.
Please see “Reconciliation of Operating Segments” for a detailed reconciliation of Brookfield Infrastructure’s proportionate results to our partnership’s Consolidated Statements of Operating Results.
2.
During the three and six-month periods ended June 30, 2017, on average there were 259.6 million and 259.5 million limited partnership units outstanding (2016: 243.2 million for the three and six-month periods).
3.
During the three and six-month periods ended June 30, 2017, on average there were 369.6 million and 369.5 million units outstanding (2016 : 345.1 million for the three and six-month periods).
The following table reconciles net (loss) income per limited partnership unit, the most directly comparable IFRS measure, to Adjusted Earnings per unit, a non-IFRS financial metric:
 
For the three-month
period ended June 30
 
For the six-month
period ended June 30
US$ MILLIONS, EXCEPT PER UNIT AMOUNTS
2017

 
2016

 
2017

 
2016

Net (loss) income per limited partnership unit(1)
$
(0.06
)
 
$
0.39

 
$
(0.09
)
 
$
0.56

Add back or deduct the following:
 
 
 
 
 
 
 
Depreciation and amortization expense due to application of revaluation model & acquisition accounting
0.24

 
0.21

 
0.45

 
0.42

Mark-to-market on hedging items
0.11

 
(0.07
)
 
0.23

 
(0.03
)
Losses on sale of subsidiaries or ownership changes and other
—

 
(0.28
)
 
—

 
(0.28
)
Adjusted earnings per unit(2)
$
0.29

 
$
0.25

 
$
0.59

 
$
0.67


1.
During the three and six-month periods ended June 30, 2017, on average there were 259.6 million and 259.5 million limited partnership units outstanding (2016: 243.2 million for the three and six-month periods).
2.
During the three and six-month periods ended June 30, 2017, on average there were 369.6 million and 369.5 million units outstanding (2016 : 345.1 million for the three and six-month periods).

58 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

The following reconciles partnership capital, the most directly comparable IFRS measure, to Invested Capital, a non-IFRS financial metric:
 
As of
US$ MILLIONS
June 30, 2017
 
December 31, 2016
Partnership Capital
$
12,624

 
$
9,644

Remove impact of the following items since inception:
 
 
 
Non-controlling interest - in operating subsidiaries
(6,045
)
 
(2,771
)
Deficit (Earnings)
1,052

 
697

Accumulated Other Comprehensive Income
(904
)
 
(1,074
)
Ownership Changes
(109
)
 
(109
)
Invested Capital
$
6,618

 
$
6,387

Invested capital has increased as a result of the issuance of $220 million of Series 7 preferred units in January 2017, and $11 million related to units issued under our partnership’s distribution reinvestment plan.
OTHER RELEVANT MEASURES
The following section contains information to assist users in the calculation of the enterprise value of our partnership.
Enterprise Value
We define Enterprise Value as the market value of our partnership plus preferred units and proportionate debt, net of proportionate cash.
The following table presents Enterprise Value as of June 30, 2017 and December 31, 2016:
 
As of
US$ MILLIONS
June 30, 2017
 
December 31, 2016
Partnership units outstanding, end of period(1)
369.7

 
369.5

Price(2)
$
41.0573

 
$
33.4719

Market capitalization
15,179

 
12,368

Preferred units(3)
595

 
375

Proportionate net debt(4)
9,656

 
7,722

Enterprise value
$
25,430

 
$
20,465


1.
Includes limited partner, general partner and redeemable partnership units held by Brookfield.
2.
Market value of our partnership is calculated based on the price per unit referencing the volume weighted average of the trading price of our units on the New York Stock Exchange for the last five trading days of a period.
3.
Preferred units on Brookfield Infrastructure’s Consolidated Statements of Financial Position.
4.
Please see “Capital Resources and Liquidity” for a detailed reconciliation of Brookfield Infrastructure’s proportionate net debt to our partnership’s consolidated debt on the Consolidated Statements of Financial Position.
Reconciliation of Operating Segments
Adjusted EBITDA, FFO and AFFO are presented based on our proportionate share of results in operations accounted for using consolidation and the equity method whereby we either control or exercise significant influence over the investment respectively, in order to demonstrate the impact of key value drivers of each of these operating segments on our overall performance. As a result, segment depreciation and amortization, deferred income taxes, breakage and transaction costs, and non-cash valuation gains or losses are reconciling items that will differ from results presented in accordance with IFRS as these reconciling items (1) include our proportionate share of earnings from investments in associates attributable to each of the above-noted items, and (2) exclude the proportionate share of earnings (loss) of consolidated investments not held by us apportioned to each of the above-noted items.

Q2 2017 INTERIM REPORT 59

The following tables present 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 our ownership in operations accounted for using the consolidation and equity method whereby we either control or exercise significant influence over the investment, respectively. These tables reconcile our proportionate results to our partnership’s consolidated statements of operating results on a line by line basis by aggregating the components comprising the earnings from our investments in associates and reflecting the portion of each line item attributable to non-controlling interests. See “Discussion of Segment Reconciling Items” on page 63 for a reconciliation of segment results to our statement of operating results in accordance with IFRS.
 
 
Total attributable to Brookfield Infrastructure
 
 
 
 
 
 
FOR THE THREE-MONTH PERIOD ENDED
JUNE 30, 2017
US$ MILLIONS
 
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

 
Contribution
from
investments
in associates

 
Attributable
to non-
controlling
interest

 
As per
IFRS
financials

 
 
 
 
 
 
 
 
Revenues
 
$
278

 
$
395

 
$
123

 
$
41

 
$
—

 
$
837

 
$
(408
)
 
$
505

 
$
934

Costs attributed to revenues
 
(73
)
 
(224
)
 
(60
)
 
(18
)
 
—

 
(375
)
 
220

 
(218
)
 
(373
)
General and administrative costs
 
—

 
—

 
—

 
—

 
(59
)
 
(59
)
 
—

 
—

 
(59
)
Adjusted EBITDA
 
205

 
171

 
63

 
23

 
(59
)
 
403

 
(188
)
 
287

 

Other (expense) income
 
(8
)
 
1

 
3

 
(1
)
 
7

 
2

 
1

 
(16
)
 
(13
)
Interest expense
 
(29
)
 
(38
)
 
(23
)
 
(3
)
 
(17
)
 
(110
)
 
44

 
(41
)
 
(107
)
FFO
 
168

 
134

 
43

 
19

 
(69
)
 
295

 
(143
)
 
230

 

Depreciation and amortization
 
(57
)
 
(75
)
 
(35
)
 
(19
)
 
—

 
(186
)
 
91

 
(111
)
 
(206
)
Deferred taxes
 
(12
)
 
2

 
5

 
3

 
(3
)
 
(5
)
 
(3
)
 
(10
)
 
(18
)
Mark-to-market on hedging items and other
 
(12
)
 
(18
)
 
(12
)
 
(1
)
 
(56
)
 
(99
)
 
19

 
21

 
(59
)
Share of earnings from associates
 
—

 
—

 
—

 
—

 
—

 
—

 
36

 
—

 
36

Net income attributable to non-controlling interest and preferred unitholders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(130
)
 
(130
)
Net income (loss) attributable to partnership(1)
 
$
87

 
$
43

 
$
1

 
$
2

 
$
(128
)
 
$
5

 
$
—

 
$
—

 
$
5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total attributable to Brookfield Infrastructure
 
 
 
 
 
 
FOR THE THREE-MONTH PERIOD ENDED
JUNE 30, 2016
US$ MILLIONS
 
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

 
Contribution
from
investments
in associates

 
Attributable to non-controlling
interest

 
As per IFRS
financials

 
 
 
 
 
 
 
 
 
Revenues
 
$
176

 
$
291

 
$
116

 
$
40

 
$
—

 
$
623

 
$
(311
)
 
$
150

 
$
462

Costs attributed to revenues
 
(42
)
 
(144
)
 
(50
)
 
(17
)
 
—

 
(253
)
 
154

 
(99
)
 
(198
)
General and administrative costs
 
—

 
—

 
—

 
—

 
(40
)
 
(40
)
 
—

 
—

 
(40
)
Adjusted EBITDA
 
134

 
147

 
66

 
23

 
(40
)
 
330

 
(157
)
 
51

 

Other income (expense)
 
1

 
(5
)
 
—

 
(1
)
 
18

 
13

 
6

 
(4
)
 
15

Interest expense
 
(35
)
 
(40
)
 
(23
)
 
(3
)
 
(12
)
 
(113
)
 
43

 
(31
)
 
(101
)
FFO
 
100

 
102

 
43

 
19

 
(34
)
 
230

 
(108
)
 
16

 

Depreciation and amortization
 
(40
)
 
(60
)
 
(31
)
 
(19
)
 
—

 
(150
)
 
78

 
(36
)
 
(108
)
Deferred taxes
 
(2
)
 
4

 
2

 
4

 
3

 
11

 
(8
)
 
4

 
7

Mark-to-market on hedging items and other
 
(32
)
 
81

 
(4
)
 
(4
)
 
24

 
65

 
(68
)
 
19

 
16

Share of earnings from associates
 
—

 
—

 
—

 
—

 
—

 
—

 
106

 
—

 
106

Net income attributable to non-controlling interest and preferred unitholders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3
)
 
(3
)
Net income (loss) attributable to partnership(1)
 
$
26

 
$
127

 
$
10

 
$
—

 
$
(7
)
 
$
156

 
$
—

 
$
—

 
$
156



60 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

 
 
Total attributable to Brookfield Infrastructure
 
 
 
 
 
 
FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 2017
US$ MILLIONS
 
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

 
Contribution
from
investments
in associates

 
Attributable to non-controlling
interest

 
As per
IFRS
financials

 
 
 
 
 
 
 
 
Revenues
 
$
454

 
$
770

 
$
265

 
$
80

 
$
—

 
$
1,569

 
$
(788
)
 
$
809

 
$
1,590

Costs attributed to revenues
 
(121
)
 
(434
)
 
(116
)
 
(35
)
 
—

 
(706
)
 
411

 
(421
)
 
(716
)
General and administrative costs
 
—

 
—

 
—

 
—

 
(110
)
 
(110
)
 
—

 
—

 
(110
)
Adjusted EBITDA
 
333

 
336

 
149

 
45

 
(110
)
 
753

 
(377
)
 
388

 

Other (expense) income
 
(7
)
 
(2
)
 
6

 
(1
)
 
27

 
23

 
7

 
(16
)
 
14

Interest expense
 
(58
)
 
(77
)
 
(50
)
 
(6
)
 
(29
)
 
(220
)
 
93

 
(74
)
 
(201
)
FFO
 
268

 
257

 
105

 
38

 
(112
)
 
556

 
(277
)
 
298

 

Depreciation and amortization
 
(89
)
 
(151
)
 
(68
)
 
(36
)
 
—

 
(344
)
 
179

 
(161
)
 
(326
)
Deferred taxes
 
(18
)
 
7

 
—

 
5

 
(2
)
 
(8
)
 
(1
)
 
(9
)
 
(18
)
Mark-to-market on hedging items and other
 
(28
)
 
(39
)
 
(19
)
 
(2
)
 
(95
)
 
(183
)
 
40

 
32

 
(111
)
Share of earnings from associates
 
—

 
—

 
—

 
—

 
—

 
—

 
59

 
—

 
59

Net income attributable to non-controlling interest and preferred unitholders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(160
)
 
(160
)
Net income (loss) attributable to partnership(1)
 
$
133

 
$
74

 
$
18

 
$
5

 
$
(209
)
 
$
21

 
$
—

 
$
—

 
$
21

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total attributable to Brookfield Infrastructure
 
 
 
 
 
 
FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 2016
US$ MILLIONS
 
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

 
Contribution
from
investments
in associates

 
Attributable to non-controlling
interest

 
As per
IFRS
financials

 
 
 
 
 
 
 
 
 
Revenues
 
$
341

 
$
560

 
$
242

 
$
83

 
$
—

 
$
1,226

 
$
(604
)
 
$
294

 
$
916

Costs attributed to revenues
 
(73
)
 
(281
)
 
(104
)
 
(39
)
 
—

 
(497
)
 
300

 
(203
)
 
(400
)
General and administrative costs
 
—

 
—

 
—

 
—

 
(77
)
 
(77
)
 
—

 
—

 
(77
)
Adjusted EBITDA
 
268

 
279

 
138

 
44

 
(77
)
 
652

 
(304
)
 
91

 
 
Other income (expense)
 
2

 
(9
)
 
1

 
(1
)
 
47

 
40

 
8

 
(2
)
 
46

Interest expense
 
(70
)
 
(74
)
 
(56
)
 
(5
)
 
(23
)
 
(228
)
 
90

 
(58
)
 
(196
)
FFO
 
200

 
196

 
83

 
38

 
(53
)
 
464

 
(206
)
 
31

 
 
Depreciation and amortization
 
(78
)
 
(114
)
 
(60
)
 
(38
)
 
—

 
(290
)
 
153

 
(71
)
 
(208
)
Deferred taxes
 
(8
)
 
6

 
5

 
6

 
4

 
13

 
(10
)
 
9

 
12

Mark-to-market on hedging items and other
 
(45
)
 
68

 
(8
)
 
(4
)
 
36

 
47

 
(47
)
 
44

 
44

Share of earnings from associates
 
—

 
—

 
—

 
—

 
—

 
—

 
110

 
—

 
110

Net income attributable to non-controlling interest and preferred unitholders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(13
)
 
(13
)
Net income (loss) attributable to partnership(1)
 
$
69

 
$
156

 
$
20

 
$
2

 
$
(13
)
 
$
234

 
$
—

 
$
—

 
$
234

1.
Includes net income (loss) attributable to non-controlling interests—Redeemable Partnership Units held by Brookfield, general partner and limited partners.


Q2 2017 INTERIM REPORT 61

The following 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 our ownership in operations using consolidation and the equity method whereby we either control or exercise significant influence over the investment respectively. These tables reconcile our proportionate assets to total assets presented on our 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.
 
 
Total Attributable to Brookfield Infrastructure
 
 
 
 
 
 
 
 
AS OF JUNE 30, 2017
US$ MILLIONS
 
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Brookfield
Infrastructure

 
Contribution
from
investments
in associates

 
Attributable 
to non-
controlling
interest

 
Working
capital
adjustment
and other

 
As per
IFRS
financials

Total assets
 
$
6,078

 
$
6,412

 
$
3,062

 
$
982

 
$
(894
)
 
$
15,640

 
$
(2,764
)
 
$
11,359

 
$
4,069

 
$
28,304

 
 
Total Attributable to Brookfield Infrastructure
 
 
 
 
 
 
 
 
AS OF DECEMBER 31, 2016
US$ MILLIONS
 
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Brookfield
Infrastructure

 
Contribution
from
investments
in associates

 
Attributable 
to non-
controlling
interest

 
Working
capital
adjustment
and other

 
As per
IFRS
financials

Total assets
 
$
4,605

 
$
6,160

 
$
3,032

 
$
933

 
$
(510
)
 
$
14,220

 
$
(2,996
)
 
$
6,496

 
$
3,555

 
$
21,275

Discussion of Segment Reconciling Items
The following tables detail and provide discussion, where applicable, of material changes between reporting periods for each operating segment, the reconciliation of contributions from investments in associates and attribution of non-controlling interest in the determination of Adjusted EBITDA, FFO and net income attributable to our partnership in order to facilitate the understanding of the nature of and changes to reconciling items.
FOR THE THREE-MONTH PERIOD ENDED
JUNE 30, 2017
US$ MILLIONS
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

Adjustments to items comprising Adjusted EBITDA(1)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investments in associates
$
(32
)
 
$
(87
)
 
$
(45
)
 
$
(23
)
 
$
(1
)
 
$
(188
)
Attribution to non-controlling interest
229

 
38

 
23

 
—

 
(3
)
 
287

Adjusted EBITDA
197

 
(49
)
 
(22
)
 
(23
)
 
(4
)
 
99

Adjustments to items comprising FFO(2)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investments in associates
9

 
15

 
19

 
3

 
(1
)
 
45

Attribution to non-controlling interest
(32
)
 
(11
)
 
(12
)
 
—

 
(2
)
 
(57
)
FFO
174

 
(45
)
 
(15
)
 
(20
)
 
(7
)
 
87

Adjustments to items comprising net income attributable to partnership(3)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investment in associates
23

 
72

 
26

 
20

 
2

 
143

Attribution to non-controlling interest
(197
)
 
(27
)
 
(11
)
 
—

 
5

 
(230
)
Net income attributable to partnership
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

FOR THE THREE-MONTH PERIOD ENDED
JUNE 30, 2016
US$ MILLIONS
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

Adjustments to items comprising Adjusted EBITDA(1)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investment in associates
$
(28
)
 
$
(63
)
 
$
(43
)
 
$
(23
)
 
$
—

 
$
(157
)
Attribution to non-controlling interest
39

 
23

 
15

 
—

 
(26
)
 
51

Adjusted EBITDA
11

 
(40
)
 
(28
)
 
(23
)
 
(26
)
 
(106
)
Adjustments to items comprising FFO(2)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investments in associates
6

 
19

 
20

 
4

 
—

 
49

Attribution to non-controlling interest
(14
)
 
(14
)
 
(6
)
 
—

 
(1
)
 
(35
)
FFO
3

 
(35
)
 
(14
)
 
(19
)
 
(27
)
 
(92
)
Adjustments to items comprising net income attributable to partnership(3)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investment in associates
22

 
44

 
23

 
19

 
—

 
108

Attribution to non-controlling interest
(25
)
 
(9
)
 
(9
)
 
—

 
27

 
(16
)
Net income attributable to partnership
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—


62 BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 2017
US$ MILLIONS
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

Adjustments to items comprising Adjusted EBITDA(1)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investments in associates
$
(63
)
 
$
(166
)
 
$
(101
)
 
$
(46
)
 
$
(1
)
 
$
(377
)
Attribution to non-controlling interest
266

 
76

 
64

 
—

 
(18
)
 
388

Adjusted EBITDA
203

 
(90
)
 
(37
)
 
(46
)
 
(19
)
 
11

Adjustments to items comprising FFO(2)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investments in associates
19

 
34

 
41

 
7

 
(1
)
 
100

Attribution to non-controlling interest
(44
)
 
(21
)
 
(17
)
 
—

 
(8
)
 
(90
)
FFO
178

 
(77
)
 
(13
)
 
(39
)
 
(28
)
 
21

Adjustments to items comprising net income attributable to partnership(3)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investment in associates
44

 
132

 
60

 
39

 
2

 
277

Attribution to non-controlling interest
(222
)
 
(55
)
 
(47
)
 
—

 
26

 
(298
)
Net income attributable to partnership
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 2016
US$ MILLIONS
Utilities

 
Transport

 
Energy

 
Comm.
Infrastructure

 
Other

 
Total

Adjustments to items comprising Adjusted EBITDA(1)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investment in associates
$
(56
)
 
$
(112
)
 
$
(92
)
 
$
(44
)
 
$
—

 
$
(304
)
Attribution to non-controlling interest
77

 
41

 
31

 
—

 
(58
)
 
91

Adjusted EBITDA
21

 
(71
)
 
(61
)
 
(44
)
 
(58
)
 
(213
)
Adjustments to items comprising FFO(2)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investments in associates
12

 
33

 
47

 
6

 
—

 
98

Attribution to non-controlling interest
(27
)
 
(23
)
 
(11
)
 
—

 
1

 
(60
)
FFO
6

 
(61
)
 
(25
)
 
(38
)
 
(57
)
 
(175
)
Adjustments to items comprising net income attributable to partnership(3)
 
 
 
 
 
 
 
 
 
 
 
Contributions from investment in associates
44

 
79

 
45

 
38

 
—

 
206

Attribution to non-controlling interest
(50
)
 
(18
)
 
(20
)
 
—

 
57

 
(31
)
Net income attributable to partnership
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

1.
Revenues, costs attributed to revenues, general and administrative costs.
2.
Other income, interest expense and cash taxes.
3.
Depreciation and amortization, deferred taxes, fair value adjustments, other expenses, share of earnings from associates, net income attributable to non-controlling interest.
Contributions from investments in associates and joint ventures decreased compared to the second quarter of 2016 primarily due to income recognized due to the privatization of our Brazilian toll road operations in May 2016, which was partially offset by additional income from organic growth initiatives within our North American natural gas transmission operation, the benefits from inflationary tariff increases and an increased ownership stake in our Brazilian toll road operations, incremental earnings associated with the acquisition of our Australian ports operations and the impact of foreign exchange.
Attribution to non-controlling interest increased compared to the first quarter of 2016 due to acquisitions completed over the past 12 months.
Critical Accounting Policies and Estimates
The preparation of financial statements requires management to make critical judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses that are not readily apparent from other sources, during the reporting period. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Q2 2017 INTERIM REPORT 63

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Critical judgments made by management and utilized in the normal course of preparing Brookfield Infrastructure’s consolidated financial statements are outlined below.
Financial instruments
Critical judgments associated with our partnership’s financial instruments pertain to the assessment of the effectiveness of hedging relationships. Brookfield Infrastructure performs hedge effectiveness testing on an ongoing basis with a forward-looking evaluation of whether or not the changes in the fair value or cash flows of the hedging item are expected to be highly effective in offsetting the changes in the fair value or cash flows of the hedged item over the term of the relationship, conversely our partnership performs a retrospective hedge effectiveness test evaluating whether the changes in fair value or cash flows from the hedging item has been highly effective in offsetting changes in the fair value or cash flows of the hedged item since the date of designation. Estimates and assumptions used in determining the fair value of financial instruments are equity and commodity prices; future interest rates; the credit worthiness of the company relative to its counterparties; the credit risk of the company’s counterparties relative to the company; estimated future cash flows; and discount rates.
Revaluation of property, plant and equipment
Property, plant and equipment is revalued on a regular basis. The critical estimates and assumptions underlying the valuation of property, plant and equipment are set out in Note 12, Property, Plant and Equipment in our December 31, 2016 audited consolidated financial statements. Our partnership’s property, plant, and equipment is measured at fair value on a recurring basis with an effective date of revaluation for all asset classes as of December 31, 2016. Brookfield Infrastructure determined fair value under the income method with due consideration to significant inputs such as the discount rate, terminal value multiple and overall investment horizon.
Impairment of goodwill, intangibles with indefinite lives and investment in associates and joint ventures
Our partnership assesses the impairment of goodwill and intangible assets with indefinite lives by reviewing the value-in-use or fair value less costs of disposal of the cash-generating units to which goodwill or the intangible asset has been allocated. Brookfield Infrastructure uses the following critical assumptions and estimates: the circumstances that gave rise to the goodwill, timing and amount of future cash flows expected from the cash-generating unit; discount rates; terminal capitalization rates; terminal valuation dates; useful lives and residual values.
The impairment assessment of investments in associates and joint ventures requires estimation of the recoverable amount of the asset.
Other estimates utilized in the preparation of our partnership’s financial statements are: depreciation and amortization rates and useful lives; recoverable amount of goodwill and intangible assets; ability to utilize tax losses and other tax measurements.
Recently adopted accounting standard amendments
Brookfield Infrastructure applied, for the first time, certain amendments to Standards applicable to Brookfield Infrastructure that became effective January 1, 2017. The impact of adopting these amendments on our partnership’s accounting policies and disclosures are as follows:
IAS 7 Statement of Cash Flows (“IAS 7”)
In January 2016, the IASB issued amendments to IAS 7, effective for annual periods beginning on or after January 1, 2017. The amendment requires that the following changes in liabilities arising from financing activities are disclosed (to the extent necessary): (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes. Amendments to IAS 7 were applied prospectively and Brookfield Infrastructure’s 2017 annual financial statement disclosures will contain information to reflect this amendment.

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Standards issued but not yet adopted
IFRS 15 Revenue from Contracts with Customers (“IFRS 15”)
IFRS 15, Revenue from Contracts with Customers specifies how and when revenue should be recognized as well as requiring more informative and relevant disclosures. The Standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The Standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts and a number of revenue-related interpretations. IFRS 15 applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. IFRS 15 must be applied for periods beginning on or after January 1, 2018 with early application permitted.
Our partnership has a global team in place to evaluate the financial statements and the administrative impact of adopting the standard, has participated in strategic planning sessions with Brookfield and developed an adoption plan. Our partnership has also identified major revenue streams to be assessed, and is currently in the process of accumulating, identifying and inventorying detailed information on major contracts that may be impacted by the changes at the transition date. Next steps involve completing the overall analysis, assessing any potential impact to IT systems and internal controls, and reviewing the additional disclosure required
Our partnership has concluded, on a preliminary basis, to apply the modified retrospective transition method, in which a cumulative catch-up adjustment will be recorded through equity upon initial adoption. Additionally, our partnership continues to monitor international developments in the interpretation of the Standard as a component of our ongoing impact evaluation
IFRS 9 Financial Instruments (“IFRS 9”)
In July 2014, the IASB issued the final publication of the IFRS 9 standard, superseding IAS 39, Financial Instruments. This standard establishes principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows. This new standard also includes a new general hedge accounting standard which will align hedge accounting more closely with an entity’s risk management activities. It does not fully change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however, it will allow more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. The standard has a mandatory effective date for annual periods beginning on or after January 1, 2018, with early adoption permitted. Our partnership has a global team in place to evaluate the financial statements and administrative impact of IFRS 9 on its consolidated financial statements. Our partnership has concluded, on a preliminary basis, to adopt the standard retrospectively with no restatement of comparatives. A cumulative catch-up adjustment, if any, will be recorded through equity upon initial adoption. Additionally, our partnership has commenced the issue identification phase of the transition project and expects to commence the impact assessment phase in the third quarter. Additionally, we continue to monitor developments in the interpretation of the Standard as a component of our ongoing impact evaluation.
IFRS 16 Leases (“IFRS 16”)
The IASB has published a new standard, IFRS 16. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17, Leases and related interpretations and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15 has also been applied. Brookfield Infrastructure is currently evaluating the impact of IFRS 16 on its consolidated financial statements.
Amendments and Interpretations, not yet adopted
IFRIC 22 Foreign Currency Transactions (“IFRIC 22”)
In December 2016, the IASB issued IFRIC 22, effective for annual periods beginning on or after January 1, 2018. The interpretation clarifies that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. The Interpretation may be applied either retrospectively or prospectively. Brookfield Infrastructure is currently evaluating the impact of IFRIC 22 on its consolidated financial statements, including the adoption method.

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IFRIC 23 Uncertainty over Income Tax Treatments (“IFRIC 23”)
In June 2017, the IASB published IFRIC 23, effective for annual periods beginning on or after January 1, 2019. The interpretation requires an entity to assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings and to exercise judgment in determining whether each tax treatment should be considered independently or whether some tax treatments should be considered together. The decision should be based on which approach provides better predictions of the resolution of the uncertainty. An entity also has to consider whether it is probable that the relevant authority will accept each tax treatment, or group of tax treatments, assuming that the taxation authority with the right to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so. The interpretation may be applied on either a fully retrospective basis or a modified retrospective basis without restatement of comparative information. Brookfield Infrastructure is currently evaluating the impact of IFRIC 23 on its consolidated financial statements.
CONTROLS AND PROCEDURES
No changes were made in our internal control over financial reporting during the three-month period ended June 30, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Excluded from our evaluation were internal controls over financial reporting at Niska Gas Storage Partners L.P., for which control was acquired on July 19, 2016, Linx Cargo Care Group Pty Ltd, for which control was acquired on August 18, 2016 and Nova Transportadora do Sudeste S.A., for which control was acquired on April 4, 2017. The financial statements of these entities constitute, in aggregate, 29% of total assets, 43% of partnership capital, 40% of revenue and substantially all of the net income of the consolidated financial statements of our partnership as of and for the six-month period ended June 30, 2017.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis contains forward-looking information and forward-looking statements within the meaning of applicable securities laws. We may make such statements in this report, in other filings with Canadian regulators or the SEC and in other public communications. The words “tend”, “seek”, “target”, “foresee”, “believe,” “expect,” “could”, “aim to,” “intend,” “objective”, “outlook”, “endeavour”, “estimate”, “likely”, “continue”, “plan”, derivatives thereof and other expressions of similar import, or the negative variations thereof, and similar expressions of future or conditional verbs such as “will”, “may”, “should,” which are predictions of or indicate future events, trends or prospects and which do not relate to historical matters, identify forward-looking statements. Forward-looking statements in this Management’s Discussion and Analysis include among others, statements with respect to our assets tending to appreciate in value over time, growth in our assets and operations, increases in FFO per unit and resulting capital appreciation, returns on capital and on equity, increasing demand for commodities and global movement of goods, expected capital expenditures, the impact of planned capital projects by customers of our businesses as on the performance and growth of those businesses, the extent of our corporate, general and administrative expenses, our ability to close acquisitions (including acquisitions referred to in this Management’s Discussion and Analysis and other planned transactions), our capacity to take advantage of opportunities in the marketplace, the future prospects of the assets that we operate or will operate, partnering with institutional investors, ability to identify, acquire and integrate new acquisition opportunities, long-term target return on our assets, sustainability of distribution levels, distribution growth and payout ratios, operating results and margins for our business and each operation, future prospects for the markets for our products, our plans for growth through internal growth and capital investments, ability to achieve stated objectives, ability to drive operating efficiencies, return on capital expectations for the business, contract prices and regulated rates for our operations, our expected future maintenance and capital expenditures, ability to deploy capital in accretive investments, impact on the business resulting from our view of future economic conditions, our ability to maintain sufficient financial liquidity, our ability to draw down funds under our bank credit facilities, our ability to secure financing through the issuance of equity or debt, expansions of existing operations, financing plans for our operating companies, foreign currency management activities and other statements with respect to our beliefs, outlooks, plans, expectations and intentions. Although we believe that the partnership’s anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information because they involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the partnership to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements and information.
Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include: general economic and financial conditions in the countries in which we do business which may impact market demand, foreign currency risk, the high level of government regulation affecting our businesses, the outcome and timing of various regulatory, legal and contractual issues, global credit and financial markets, the competitive business environment in the industries in which we operate, the competitive market for acquisitions and other growth opportunities, availability of equity and debt financing, the completion of various large capital projects by customers of our businesses which themselves rely on access to capital and continued favourable commodity prices, our ability to complete large capital expansion projects on time and within budget, ability to negotiate favourable take-or-pay contractual terms, traffic volumes on our toll roads, weakening demand in the natural gas market, acts of God, weather events, or similar events outside of our control, and other risks and factors detailed from time to time in documents filed by us with the securities regulators in Canada and the United States, including our most recent Annual Report on Form 20-F under the heading “Risk Factors”.
We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our forward-looking statements to make decisions with respect to Brookfield Infrastructure, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Except as required by law, the partnership undertakes no obligation to publicly update or revise any forward-looking statements or information, whether written or oral, that may be as a result of new information, future events or otherwise.

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