Business Context and Reporting Period
This Form 6-K filing by Brookfield Infrastructure Partners L.P. (BIP) incorporates the unaudited interim condensed financial statements for the quarter and six months ended June 30, 2009. BIP is a Bermuda-based limited partnership established to own and operate global infrastructure assets, including electricity transmission, timberlands, and social infrastructure. Its sole material asset is a 59% limited partnership interest in Brookfield Infrastructure L.P., which is accounted for using the equity method. Consequently, BIP does not consolidate the underlying assets or liabilities of its primary investment.
Key Financial Metrics
Revenue and Profit (Six Months Ended June 30, 2009):
- Net Income: $35.3 million (compared to $4.7 million in the prior year period).
- Earnings from Equity Accounted Investment: $35.3 million.
- Earnings Per Unit (Basic and Diluted): $1.55 (compared to $0.21 in the prior year period).
Cash Flow (Six Months Ended June 30, 2009):
- Cash from Operating Activities: $19.7 million, derived entirely from distributions received from the equity accounted investment.
- Cash Used in Financing Activities: $19.7 million, primarily due to distributions to unitholders ($12.1 million) and unit repurchases ($7.6 million).
- Cash and Equivalents: $0 at the beginning and end of the period.
Balance Sheet (As of June 30, 2009):
- Total Assets: $547.7 million (consisting solely of the equity accounted investment).
- Partnership Capital: $553.5 million.
- Accumulated Other Comprehensive Loss: $(5.8) million.
- Debt: The filing text does not provide a clear value for debt at the Partnership level, as liabilities are held at the underlying Brookfield Infrastructure L.P. level and not consolidated.
Material Changes Versus Prior Period
Profitability Surge: Net income for the six months ended June 30, 2009, increased significantly to $35.3 million from $4.7 million in the same period in 2008. This resulted in a substantial increase in earnings per unit from $0.21 to $1.55.
Comprehensive Income Volatility: While net income improved, comprehensive income for the six months ended June 30, 2009, was $20.9 million, compared to a loss of $(15.6) million in the prior year. This was driven by a foreign currency translation gain of $21.2 million, partially offset by a net loss on related hedging items of $(35.6) million.
Capital Structure: The Partnership repurchased 674,000 units during the six-month period, reducing the outstanding unit count from 23,160,269 to 22,486,269. Distributions to unitholders increased to $12.1 million from $8.1 million in the prior year period.
Guidance, Outlook, and Risks
Management Commentary: The filing notes that the financial results for the three months ended June 30, 2009, are not necessarily indicative of full-year results. The Partnership continues to seek acquisition opportunities in infrastructure sectors with stable cash flows and barriers to entry.
Risks and Contingencies:
- Accounting Structure Risk: BIP does not consolidate Brookfield Infrastructure L.P. due to FASB Interpretation No. 46 (R). Investors are advised that the consolidated financial statements of Brookfield Infrastructure are more relevant for understanding underlying operations.
- Currency and Hedging Risk: Significant volatility in comprehensive income was observed due to foreign currency translation and hedging activities, indicating exposure to currency fluctuations.
- Liquidity: The Partnership maintained zero cash and equivalents at the reporting date, relying on distributions from its underlying investment to fund its own distributions and operations.
Investor Verification Checklist
- Verify the consolidated financial statements of Brookfield Infrastructure L.P. (the underlying 100% entity) to assess actual asset quality, debt levels, and operational cash flows, as BIP's standalone statements are limited to equity accounting.
- Confirm the sustainability of the $35.3 million net income increase, as it is derived entirely from the equity method investment rather than direct operations.
- Review the hedging strategy and foreign currency exposure, given the $35.6 million loss on hedging items impacting comprehensive income.
- Assess the liquidity position of the underlying assets to ensure they can continue to generate the distributions required to fund BIP's unitholder payouts.
- Monitor the unit repurchase program and its impact on per-unit earnings and total partnership capital.