Brookfield Infrastructure Corporation (our “company”) owns and operates high quality, essential, long-life assets that generate stable cash flows and require relatively minimal maintenance capital expenditures. Our current operations consist of utilities businesses in South America, Europe and Australia.
BROOKFIELD INFRASTRUCTURE CORPORATION
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of
US$ MILLIONS
Notes
September 30, 2022
December 31, 2021
Assets
Cash and cash equivalents
5
$
265
$
469
Financial assets
5
77
—
Accounts receivable and other
5
478
448
Due from Brookfield Infrastructure
5, 16
530
1,093
Current assets
1,350
2,010
Property, plant and equipment
6
4,177
4,803
Intangible assets
7
2,745
2,687
Investments in associates
8
410
—
Goodwill
9
498
489
Financial assets
5
—
30
Other assets
18
15
Deferred income tax asset
41
52
Total assets
$
9,239
$
10,086
Liabilities and Equity
Liabilities
Accounts payable and other
5
$
627
$
605
Non-recourse borrowings
5, 10
1,025
—
Financial liabilities
5, 11
—
995
Loans payable to Brookfield Infrastructure
5, 16
26
131
Exchangeable and class B shares
5, 11
3,967
4,466
Current liabilities
5,645
6,197
Non-recourse borrowings
5, 10
3,240
3,556
Financial liabilities
5
25
—
Other liabilities
118
119
Deferred income tax liability
14
1,439
1,638
Total liabilities
10,467
11,510
Equity
Brookfield Infrastructure Partners L.P.
15
(1,867)
(2,127)
Non-controlling interest
639
703
Total equity
(1,228)
(1,424)
Total liabilities and equity
$
9,239
$
10,086
The accompanying notes are an integral part of the unaudited interim condensed and consolidated financial statements.
2 Brookfield Infrastructure Corporation
BROOKFIELD INFRASTRUCTURE CORPORATION
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATING RESULTS
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
Notes
2022
2021
2022
2021
Revenues
12
$
454
$
414
$
1,394
$
1,229
Direct operating costs(1)
6, 7, 13
(121)
(136)
(386)
(422)
General and administrative expenses
(17)
(12)
(54)
(32)
316
266
954
775
Interest expense
11, 16
(147)
(77)
(392)
(208)
Share of earnings from investments in associates
8
8
—
4
—
Remeasurement of exchangeable and class B shares
11
257
108
516
(168)
Mark-to-market on hedging items and foreign currency revaluation
5
(44)
23
38
(2)
Other income (expense)
3
12
(30)
26
116
Income before income tax
402
290
1,146
513
Income tax (expense) recovery
Current
(53)
(60)
(253)
(164)
Deferred
14
(18)
(17)
64
(157)
Net income
$
331
$
213
$
957
$
192
Attributable to:
Brookfield Infrastructure Partners L.P.
$
229
$
122
$
529
$
(99)
Non-controlling interest
102
91
428
291
1.Our company reclassified depreciation and amortization expense, which was previously presented as a separate line item, to direct operating costs. Direct operating costs include depreciation and amortization expenses of $51 million and $159 million for the three and nine-month periods ended September 30, 2022, respectively. Prior period amounts were also adjusted to reflect this change, which resulted in an increase to direct operating costs by $65 million and $210 million for the three and nine-month periods ended September 30, 2021, respectively, with an equal and offsetting decrease to depreciation and amortization expense. This reclassification had no impact on revenues or net income.
2.Earnings per share have not been presented in the financial statements, as the underlying shares do not constitute “ordinary shares” under IAS 33 Earnings per share.
The accompanying notes are an integral part of the unaudited interim condensed and consolidated financial statements.
Q3 2022 Interim Report 3
BROOKFIELD INFRASTRUCTURE CORPORATION
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
Notes
2022
2021
2022
2021
Net income
$
331
$
213
$
957
$
192
Other comprehensive (loss) income:
Items that will not be reclassified subsequently to profit or loss:
Tax impact of remeasurement of revaluation surplus
14
—
—
—
(87)
—
—
—
(87)
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation
(174)
(163)
(320)
(67)
Cash flow hedges
5
(70)
1
(73)
1
Taxes on the above items
15
(1)
16
(1)
Share of earnings from investments in associates
8
24
—
28
—
(205)
(163)
(349)
(67)
Total other comprehensive loss
(205)
(163)
(349)
(154)
Comprehensive income
$
126
$
50
$
608
$
38
Attributable to:
Brookfield Infrastructure Partners L.P.
$
96
$
51
$
260
$
(178)
Non-controlling interests
30
(1)
348
216
The accompanying notes are an integral part of the unaudited interim condensed and consolidated financial statements.
4 Brookfield Infrastructure Corporation
BROOKFIELD INFRASTRUCTURE CORPORATION
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF EQUITY
FOR THE THREE-MONTH PERIOD ENDED September 30, 2022 $US MILLIONS
Share capital
Retained earnings
Ownership changes
Accumulated other comprehensive income
Brookfield Infrastructure Partners L.P.
Non-controlling interest
Total equity
Balance as at June 30, 2022
$
53
$
107
$
(2,379)
$
256
$
(1,963)
$
885
$
(1,078)
Net income
—
229
—
—
229
102
331
Other comprehensive loss
—
—
—
(133)
(133)
(72)
(205)
Comprehensive income (loss)
—
229
—
(133)
96
30
126
Distributions to non-controlling interest
—
—
—
—
—
(276)
(276)
Balance as at September 30, 2022
$
53
$
336
$
(2,379)
$
123
$
(1,867)
$
639
$
(1,228)
FOR THE THREE-MONTH PERIOD ENDED September 30, 2021 $US MILLIONS
Share capital
Retained earnings
Ownership changes
Accumulated other comprehensive income
Brookfield Infrastructure Partners L.P.
Non-controlling interest
Total equity
Balance as at June 30, 2021
$
53
$
(46)
$
(2,379)
$
389
$
(1,983)
$
835
$
(1,148)
Net income
—
122
—
—
122
91
213
Other comprehensive loss
—
—
—
(71)
(71)
(92)
(163)
Comprehensive income (loss)
—
122
—
(71)
51
(1)
50
Distributions to non-controlling interest
—
—
—
—
—
(92)
(92)
Balance as at September 30, 2021
$
53
$
76
$
(2,379)
$
318
$
(1,932)
$
742
$
(1,190)
The accompanying notes are an integral part of the unaudited interim condensed and consolidated financial statements.
Q3 2022 Interim Report 5
BROOKFIELD INFRASTRUCTURE CORPORATION
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF EQUITY
FOR THE NINE-MONTH PERIOD ENDED September 30, 2022 $US MILLIONS
Share capital
Retained earnings
Ownership changes
Accumulated other comprehensive income
Brookfield Infrastructure Partners L.P.
Non-controlling interest
Total equity
Balance as at January 1, 2022
$
53
$
(193)
$
(2,379)
$
392
$
(2,127)
$
703
$
(1,424)
Net income
—
529
—
—
529
428
957
Other comprehensive loss
—
—
—
(269)
(269)
(80)
(349)
Comprehensive income (loss)
—
529
—
(269)
260
348
608
Distributions to non-controlling interest
—
—
—
—
—
(412)
(412)
Balance as at September 30, 2022
$
53
$
336
$
(2,379)
$
123
$
(1,867)
$
639
$
(1,228)
FOR THE NINE-MONTH PERIOD ENDED September 30, 2021 $US MILLIONS
Share capital
Retained earnings
Ownership changes
Accumulated other comprehensive income
Brookfield Infrastructure Partners L.P.
Non-controlling interest
Total equity
Balance as at January 1, 2021
$
53
$
33
$
(2,347)
$
539
$
(1,722)
$
1,150
$
(572)
Net (loss) income
—
(99)
—
—
(99)
291
192
Other comprehensive loss
—
—
—
(79)
(79)
(75)
(154)
Comprehensive (loss) income
—
(99)
—
(79)
(178)
216
38
Distributions to non-controlling interest
—
—
—
—
—
(373)
(373)
Acquisition of non-controlling interest(1)
—
—
—
—
—
(196)
(196)
Other items(1),(2)
—
142
(32)
(142)
(32)
(55)
(87)
Balance as at September 30, 2021
$
53
$
76
$
(2,379)
$
318
$
(1,932)
$
742
$
(1,190)
1.See Note 4, Acquisition of Businesses for further details.
2.See Note 3, Disposition of Businesses for further details.
The accompanying notes are an integral part of the unaudited interim condensed and consolidated financial statements.
6 Brookfield Infrastructure Corporation
BROOKFIELD INFRASTRUCTURE CORPORATION
UNAUDITED INTERIM CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
Notes
2022
2021
2022
2021
Operating Activities
Net income
$
331
$
213
$
957
$
192
Adjusted for the following items:
Earnings from investments in associates, net of distributions received
8
1
—
22
—
Depreciation and amortization expense
6, 7, 13
51
65
159
210
Mark-to-market on hedging items and other
5
51
21
(3)
(99)
Remeasurement of exchangeable and class B shares
11
(257)
(108)
(516)
168
Deferred income tax expense (recovery)
14
18
17
(64)
157
Changes in non-cash working capital, net
17
19
52
14
(9)
Cash from operating activities
214
260
569
619
Investing Activities
Disposal of subsidiaries, net of cash disposed
3
—
—
—
817
Investments in associates
8
—
—
(455)
—
Purchase of long-lived assets, net of disposals
6, 7
(122)
(109)
(375)
(305)
Purchase of financial assets
—
—
(71)
—
Settlement of foreign exchange and other hedging items
5
—
—
—
(76)
Cash (used by) from investing activities
(122)
(109)
(901)
436
Financing Activities
Distributions to non-controlling interest
(276)
(92)
(412)
(373)
Acquisition of partial interest from non-controlling interest
4
—
—
—
(283)
Proceeds from non-recourse borrowings
10
262
—
1,308
377
Repayment of non-recourse borrowings
10
(266)
—
(277)
(211)
Repayment from Brookfield Infrastructure
16
—
—
595
—
Repayment to Brookfield Infrastructure
16
(46)
—
(106)
(340)
Settlement of deferred consideration
11
—
—
(1,037)
—
Cash (used by) from financing activities
(326)
(92)
71
(830)
Cash and cash equivalents
Change during the period
(234)
59
(261)
225
Impact of foreign exchange on cash
(13)
(23)
57
(11)
Balance, beginning of period
512
370
469
192
Balance, end of period
$
265
$
406
$
265
$
406
The accompanying notes are an integral part of the unaudited interim condensed and consolidated financial statements.
Q3 2022 Interim Report 7
NOTES TO THE UNAUDITED INTERIM CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 AND
FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2022 AND 2021
1. ORGANIZATION AND DESCRIPTION OF OUR COMPANY
Brookfield Infrastructure Corporation
Brookfield Infrastructure Corporation and its subsidiaries, own and operate regulated utilities investments in Brazil, the United Kingdom and Australia (the “businesses”). Our company was formed as a corporation established under the British Columbia Business Corporation Act on August 30, 2019 and is a subsidiary of Brookfield Infrastructure Partners L.P. (the “partnership”), which we also refer to as the parent company and Brookfield Infrastructure. The partnership, our company and our respective subsidiaries, are referred to collectively as our group. Brookfield Asset Management Inc. (“Brookfield”) is our company’s ultimate parent. The class A exchangeable subordinate voting shares (“exchangeable shares”) of Brookfield Infrastructure Corporation are listed on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “BIPC”. The registered head office of Brookfield Infrastructure Corporation is 250 Vesey Street, New York, NY, United States. The exchangeable shares of our company are structured with the intention of being economically equivalent to the units of the partnership. Given the economic equivalence, we expect that the market price of the exchangeable shares will be significantly impacted by the market price of the partnership’s units and the combined business performance of our company and Brookfield Infrastructure as a whole.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
a)Statement of Compliance
These unaudited interim condensed and consolidated financial statements (“interim financial statements”) of our company and its subsidiaries 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 our company applied in its consolidated financial statements as of and for the year-ended December 31, 2021 (“consolidated financial statements”). The accounting policies that our company applied in its consolidated financial statements are disclosed in Note 3 of such financial statements, of which reference should be made in reading these interim financial statements. In addition to the accounting policies disclosed in Note 3 of our consolidated financial statements, our interim financial statements have been prepared in accordance with the accounting policies described below .
These interim financial statements were authorized for issuance by the Board of Directors of our company on November 14, 2022.
b)Basis of presentation
The interim financial statements are prepared on a going concern basis.
Associates
Associates are entities over which our company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not constitute control. Our company accounts for investments over which it has significant influence using the equity method, and are recorded as Investments in associates on the unaudited interim condensed and consolidated statements of financial position.
Interests in investments accounted for using the equity method are initially recorded at cost. If the cost of the associate is lower than the proportionate share of the investment’s underlying fair value, our company records a gain on the difference between the cost and the underlying fair values of the identifiable net assets of the associate. If the cost of the associate is greater than our company’s proportionate share of the underlying fair value, goodwill and other adjustments arising from the purchase price allocation relating to the associate is included in the carrying amount of the investment. Subsequent to initial recognition, the carrying value of our company’s interest in an investee is adjusted for our company’s share of comprehensive income or loss and distributions from the investee.
Profits or losses resulting from transactions with an associate are recognized in the interim financial statements based on the interests of unrelated investors in the associate.
8 Brookfield Infrastructure Corporation
c)Significant Accounting Judgments and Key Sources of Estimation Uncertainty
In preparing our interim financial statements, we make judgments in applying our accounting policies. The areas of judgment are consistent with those reported in our consolidated financial statements. As disclosed in our consolidated financial statements, our company uses significant assumptions and estimates to determine the fair value of our property, plant and equipment and the value-in-use or fair value less costs of disposal of the cash-generating units or groups of cash generating units to which goodwill or an intangible asset has been allocated. In addition, the impairment assessment of investments in associates requires estimation of the recoverable amount of the investment.
3. DISPOSITION OF BUSINESSES
Dispositions Completed in 2021
a) Disposition of our U.K. regulated distribution business’s portfolio of smart meters
On May 12, 2021, our U.K. regulated distribution business sold its smart meters business for gross consideration of approximately $820 million. After the repayment of debt and working capital requirements at the business, our company received net proceeds of approximately $340 million. The business recognized a gain of approximately $195 million in Other income (expense) on the Consolidated Statements of Operating Results, of which approximately $155 million is attributable to our company. Our company’s share of accumulated revaluation surplus of $142 million was reclassified from accumulated other comprehensive income directly to retained earnings and recorded within Other items on the Consolidated Statements of Equity. Our company’s share of net losses relating to previous foreign exchange movements of $17 million was reclassified from accumulated other comprehensive income to Other income (expense) on the Consolidated Statements of Operating Results.
4. ACQUISITION OF BUSINESSES
Acquisitions Completed in 2021
a) Acquisition of additional interest in our Brazilian regulated gas transmission operation
On April 30, 2021, Brookfield Infrastructure, alongside institutional partners (the “NTS consortium”), acquired an additional 3% interest (NTS consortium total of 10%) in our Brazilian regulated gas transmission operation, increasing our company’s ownership of the business to approximately 31%. Total consideration paid was $87 million (NTS consortium total of $283 million), all of which was funded using asset level debt raised on closing. As a result of the purchase price exceeding the previous carrying value of non-controlling interests, a loss of $32 million was recognized directly in ownership changes and recorded within Other items on the Consolidated Statements of Equity.
5. 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, our company 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.
Classification of Financial Instruments
Financial instruments classified as fair value through profit or loss are carried at fair value on the unaudited 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 securities designated as fair value through other comprehensive income are recognized in other comprehensive income.
Q3 2022 Interim Report 9
Carrying Value and Fair Value of Financial Instruments
The following table provides the allocation of financial instruments and their associated financial instrument classifications as at September 30, 2022:
US$ MILLIONS
Financial Instrument Classification
MEASUREMENT BASIS
Fair value through profit or loss
Amortized Cost
Total
Financial assets
Cash and cash equivalents
$
—
$
265
$
265
Accounts receivable and other
—
418
418
Financial assets(1)
77
—
77
Due from Brookfield Infrastructure
—
530
530
Total
$
77
$
1,213
$
1,290
Financial liabilities
Accounts payable and other (current and non-current)
$
—
$
468
$
468
Non-recourse borrowings (current and non-current)
—
4,265
4,265
Exchangeable and class B shares(2)
—
3,967
3,967
Financial liabilities (current and non-current)(1)
25
—
25
Loans payable to Brookfield Infrastructure
—
26
26
Total
$
25
$
8,726
$
8,751
1.Derivative instruments which are elected for hedge accounting totaling $77 million are included in financial assets and $25 million of derivative instruments are included in financial liabilities.
2.Class C shares are also classified as financial liabilities due to their cash redemption feature. However, the class C shares meet certain qualifying criteria and are presented as equity. See Note 15, Equity.
The following table provides the allocation of financial instruments and their associated financial instrument classifications as at December 31, 2021:
US$ MILLIONS
Financial Instrument Classification
MEASUREMENT BASIS
Fair value through profit or loss
Amortized Cost
Total
Financial assets
Cash and cash equivalents
$
—
$
469
$
469
Accounts receivable and other (current and non-current)
—
402
402
Financial assets(1)
30
—
30
Due from Brookfield Infrastructure
—
1,093
1,093
Total
$
30
$
1,964
$
1,994
Financial liabilities
Accounts payable and other (current and non-current)
$
—
$
416
$
416
Non-recourse borrowings (current and non-current)
—
3,556
3,556
Exchangeable and class B shares(2)
—
4,466
4,466
Financial liabilities (current and non-current)(1)
—
995
995
Loans payable to Brookfield Infrastructure
—
131
131
Total
$
—
$
9,564
$
9,564
1.Derivative instruments which are elected for hedge accounting totaling $30 million are included in financial assets and $nil of derivative instruments are included in financial liabilities.
2.Class C shares are also classified as financial liabilities due to their cash redemption feature. However, the class C shares meet certain qualifying criteria and are presented as equity. See Note 15, Equity.
10 Brookfield Infrastructure Corporation
The following table provides the carrying values and fair values of financial instruments as at September 30, 2022 and December 31, 2021:
September 30, 2022
December 31, 2021
US$ MILLIONS
Carrying Value
Fair Value
Carrying Value
Fair Value
Financial assets
Cash and cash equivalents
$
265
$
265
$
469
$
469
Accounts receivable and other
418
418
402
402
Financial assets
77
77
30
30
Due from Brookfield Infrastructure
530
530
1,093
1,093
Total
$
1,290
$
1,290
$
1,994
$
1,994
Financial liabilities
Accounts payable and other (current and non-current)
$
468
$
468
$
416
$
416
Non-recourse borrowings (current and non-current)(1)
4,265
3,985
3,556
3,627
Exchangeable and class B shares(2)
3,967
3,967
4,466
4,466
Financial liabilities (current and non-current)
25
25
995
995
Loans payable to Brookfield Infrastructure
26
26
131
131
Total
$
8,751
$
8,471
$
9,564
$
9,635
1.Non-recourse borrowings are classified under level 2 of the fair value hierarchy. For level 2 fair values, future cash flows are estimated based on observable forward interest rates at the end of the reporting period.
2.Class C shares are also classified as financial liabilities due to their cash redemption feature. However, the class C shares meet certain qualifying criteria and are presented as equity.
Hedging Activities
Our company 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, our company 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 designated as a hedge of a specific exposure and the hedging relationship must meet all of the hedge effectiveness requirements 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 hedging relationship does not meet all of the hedge effectiveness requirements, hedge accounting is discontinued prospectively.
Cash Flow Hedges
Our company uses interest rate swaps to hedge the variability in cash flows related to a variable rate asset or liability and highly probable 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 nine-month periods ended September 30, 2022, pre-tax net unrealized losses of $70 million and $73 million, respectively (2021: gains of $1 million and $1 million, respectively), were recorded in other comprehensive income for the effective portion of the cash flow hedges. As of September 30, 2022, there was a net derivative asset balance of $52 million relating to derivative contracts designated as cash flow hedges (December 31, 2021: $30 million).
Q3 2022 Interim Report 11
Fair Value Hierarchical Levels—Financial Instruments
Fair value hierarchical levels are directly determined by the amount of subjectivity associated with the valuation inputs of these assets and liabilities, and are as follows:
Level 1
—
Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2
—
Inputs other than quoted prices included in Level 1 are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Fair valued assets and liabilities that are included in this category are primarily certain derivative contracts and other financial assets carried at fair value in an inactive market.
Level 3
—
Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to determining the estimate. Fair valued assets and liabilities that are included in this category are interest rate swap contracts, derivative contracts, certain equity securities carried at fair value which are not traded in an active market and the non-controlling interest’s share of net assets of limited life funds.
The fair value of our company’s financial assets and financial liabilities are measured at fair value on a recurring basis. The following table summarizes the valuation techniques and significant inputs for our company’ financial assets and financial liabilities:
US$ MILLIONS
Fair value hierarchy
September 30, 2022
December 31, 2021
Interest rate swaps & other
Level 2(1)
Financial assets
$
77
$
30
Financial liabilities
25
—
1.Valuation technique: Discounted cash flow. Future cash flows are estimated based on forward exchange and interest rates (from observable forward exchange and interest 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.
During the three and nine-month periods ended September 30, 2022, no transfers were made between level 1 and 2 or level 2 and 3.
12 Brookfield Infrastructure Corporation
6. PROPERTY, PLANT AND EQUIPMENT
US$ MILLIONS
Gross carrying amount
Accumulated depreciation
Accumulated fair value adjustments
Total
Balance at January 1, 2021
$
4,197
$
(719)
$
1,633
$
5,111
Additions, net of disposals
367
10
—
377
Assets held by subsidiaries disposed during the period
(599)
163
(217)
(653)
Non-cash disposals
(1)
(3)
—
(4)
Depreciation expense
—
(128)
—
(128)
Fair value adjustments
—
—
134
134
Net foreign currency exchange differences
(29)
4
(9)
(34)
Balance at December 31, 2021
$
3,935
$
(673)
$
1,541
$
4,803
Additions, net of disposals
316
4
—
320
Non-cash additions
5
(3)
—
2
Depreciation expense
—
(83)
—
(83)
Net foreign currency exchange differences
(722)
126
(269)
(865)
Balance at September 30, 2022
$
3,534
$
(629)
$
1,272
$
4,177
Property, plant and equipment of our company is predominantly comprised of last mile utility connections at our U.K. regulated distribution operation which provide essential services and generate regulated cash flows. Tariffs are set on the basis of a regulated asset base, provides inflation protection, and are typically adjusted annually. Our U.K. operation has a diverse customer base throughout England, Scotland, and Wales, which underpins its cash flows.
Our company’s property, plant, and equipment is measured at fair value on a recurring basis with an effective date of revaluation for all asset classes of December 31. Our company determined fair value under the income method. Assets under development were revalued where fair value could be reliably measured.
7. INTANGIBLE ASSETS
As of
US$ MILLIONS
September 30, 2022
December 31, 2021
Cost
$
3,473
$
3,332
Accumulated amortization
(728)
(645)
Total
$
2,745
$
2,687
Intangible assets are allocated to the following cash generating units:
As of
US$ MILLIONS
September 30, 2022
December 31, 2021
Brazilian regulated gas transmission operation
$
2,715
$
2,645
U.K. regulated distribution operation
30
42
Total
$
2,745
$
2,687
Our company’s intangible assets are primarily related to concession arrangements with the local energy regulator, Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (“ANP”), at our Brazilian regulated gas transmission operation. Total capacity is fully contracted under long-term “ship-or-pay” gas transportation agreements (“GTA”) and therefore the business is exposed to no volume or price risk. Each GTA takes into account a return on regulatory asset base (“RAB”), and the tariffs are calculated on an inflation adjusted regulatory weighted average cost of capital (“WACC”) fixed for the life of GTAs. On April 8, 2021, new legislation was passed in Brazil which provides our Brazilian regulated gas transmission operation the right to operate the gas pipelines perpetually.
The intangible assets at our U.K. regulated distribution operation relate to customer order backlogs, which represents the present value of future earnings derived from the build out of contracted connections at the acquisition date of the U.K. regulated distribution operation.
Q3 2022 Interim Report 13
The following table presents the change in the cost balance of intangible assets:
US$ MILLIONS
For the nine-month period ended September 30, 2022
For the 12 month period ended December 31, 2021
Cost at beginning of the period
$
3,332
$
3,527
Additions, net of disposals
55
38
Non-cash additions
—
5
Foreign currency translation
86
(238)
Ending Balance
$
3,473
$
3,332
The following table presents the accumulated amortization for our company’s intangible assets:
US$ MILLIONS
For the nine-month period ended September 30, 2022
For the 12 month period ended December 31, 2021
Accumulated amortization at beginning of the period
$
(645)
$
(579)
Amortization
(76)
(108)
Foreign currency translation
(7)
42
Ending Balance
$
(728)
$
(645)
8. INVESTMENTS IN ASSOCIATES
The following table represents the change in balance of investments in associates:
US$ MILLIONS
For the nine-month period ended September 30, 2022
Balance at the beginning of the period
$
—
Acquisitions
455
Share of earnings for the period
4
Foreign currency translation and other
(51)
Share of other comprehensive income
28
Distributions
(26)
Ending Balance
$
410
In February 2022, our company acquired an approximate 8% interest in an Australian regulated utility, AusNet Services Ltd (“AusNet”) for $455 million. Based on our ownership interest and governance rights retained, our company equity accounts for the entity.
The following tables summarize the aggregate balances of investments in associates on a 100% basis:
As of
US$ MILLIONS
September 30, 2022
Financial position:
Total assets
13,211
Total liabilities
(7,919)
Net assets
$
5,292
US$ MILLIONS
For the three-month period ended September 30, 2022
For the nine-month period ended September 30, 2022
Financial performance:
Total revenue
$
392
$
913
Total net income for the period(1)
105
53
Our company’s share of net income
$
8
$
4
1.Total net income for the nine-month period ended September 30, 2022 includes acquisition-related transaction costs of $105 million.
14 Brookfield Infrastructure Corporation
9. GOODWILL
The following table presents the carrying amount for our company’s goodwill:
As of
US$ MILLIONS
September 30, 2022
December 31, 2021
Balance at beginning of the period
$
489
$
528
Foreign currency translation and other
9
(39)
Ending Balance
$
498
$
489
Goodwill mainly arose from the recognition of a deferred tax liability due to purchase price accounting upon the acquisition of our Brazilian regulated gas transmission business. The operating performance at our Brazilian regulated gas transmission business benefits from stable, long-term, contracted cash flows and has been largely unimpacted by recent changes in the macroeconomic environment. As such, no impairment indicators were noted during the nine-month period ended September 30, 2022.
10. BORROWINGS
Non-Recourse Borrowings
As of
US$ MILLIONS
September 30, 2022
December 31, 2021
Current
$
1,025
$
—
Non-current
3,240
3,556
Total
$
4,265
$
3,556
Non-recourse borrowings have increased by $709 million since year-end. The increase is primarily attributable to debt raised by our Brazilian regulated gas transmission business in connection with financing our deferred consideration obligation, partially offset by repayments and the impact of foreign exchange.
11. FINANCIAL LIABILITIES
As of
US$ MILLIONS
September 30, 2022
December 31, 2021
Current:
Deferred consideration
—
995
Total current financial liabilities
$
—
$
995
Deferred consideration
Deferred consideration was related to the April 4, 2017 acquisition of Nova Transportadora do Sudeste S.A. (“NTS”), our Brazilian regulated gas transmission business. The deferred consideration was denominated in U.S. dollars and accrued interest at 3.35% compounded annually. The financial liability was measured at amortized cost and was settled on April 4, 2022, the fifth anniversary of the date of acquisition.
Q3 2022 Interim Report 15
Exchangeable shares, class B shares and class C shares
The exchangeable and class B shares are classified as liabilities due to their exchangeable and cash redemption features. Upon issuance, exchangeable and class B shares are recognized at their fair value. Subsequent to initial recognition, the exchangeable and class B shares are recognized at amortized cost and remeasured to reflect changes in the contractual cash flows associated with the shares. These contractual cash flows are based on the price of one unit of the partnership.
In August 2021, the partnership acquired a controlling interest in Inter Pipeline Limited (“IPL”) for consideration comprised of cash, exchangeable shares and class B exchangeable limited partnership units (“BIPC exchangeable LP units”) of Brookfield Infrastructure Corporation Exchange Limited Partnership (“BIPC Exchange LP”). BIPC Exchange LP is a subsidiary of the partnership and holders of BIPC exchangeable LP units have the right to require the partnership to purchase BIPC exchangeable LP units and deliver one exchangeable share for each BIPC exchangeable LP unit purchased. During the nine-month period ended September 30, 2022, our company issued 372,622 exchangeable shares in connection with exchange requests from BIPC Exchange LP unit holders. Upon issuance, the exchangeable shares were recognized at their fair value.
During the nine-month period ended September 30, 2022, our shareholders exchanged 17,077 exchangeable shares for an equal number of partnership units. As at September 30, 2022, the exchangeable and class B shares were remeasured to reflect the NYSE closing price of one unit, $35.90 per share. Remeasurement gains or losses associated with these shares are recorded in the unaudited interim condensed and consolidated statements of operating results. Our company declared and paid dividends of $39 million and $118 million on its exchangeable shares outstanding during the three and nine-month periods ended September 30, 2022, respectively (2021: $32 million and $78 million, respectively). Dividends paid on exchangeable shares are presented as interest expense in the unaudited interim condensed and consolidated statements of operating results.
On June 10, 2022, Brookfield Infrastructure completed a three-for-two stock split of partnership units, BIPC exchangeable LP units, exchangeable shares, class B shares and class C shares, by way of a subdivision whereby unitholders/shareholders received an additional one-half of a unit/share for each unit/share held. All historical units/shares and per unit/share disclosures have been adjusted to effect for the change in units/shares due to the stock split.
The following table provides a continuity schedule of outstanding exchangeable shares and class B shares along with our corresponding liability and remeasurement gains and losses:
Exchangeable shares outstanding (Shares)
Class B shares outstanding (Shares)
Exchangeable and class B shares (US$ Millions)
Balance at January 1, 2021
67,441,451
2
$
2,221
Share issuance(1)
42,195,641
—
1,776
Share issuance - BIPC exchangeable LP unit exchanges
556,997
—
23
Shares exchanged to units
(36,549)
—
(1)
Remeasurement of liability
—
—
447
Balance at December 31, 2021
110,157,540
2
$
4,466
Share issuance - BIPC exchangeable LP unit exchanges
372,622
—
18
Shares exchanged to units
(17,077)
—
(1)
Remeasurement of liability
—
—
(516)
Balance as at September 30, 2022
110,513,085
2
$
3,967
1.During the year ended December 31, 2021, our company issued 3.2 million shares in exchange for net cash consideration of $128 million. The remaining shares were issued to subsidiaries of the partnership in exchange for non-cash consideration including loans receivable and settlements of loan payable.
Similar to class B shares, class C shares are classified as liabilities due to their cash redemption feature. However, class C shares, the most subordinated class of all common shares, meet certain qualifying criteria and are presented as equity instruments given the narrow scope presentation exceptions existing in IAS 32. Refer to Note 15, Equity, for further details related to class C shares.
16 Brookfield Infrastructure Corporation
12. REVENUE
a)Revenues by service line
Substantially all of these revenues are recognized over time as services are rendered. The following table disaggregates revenues by service line:
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Gas Transmission
$
324
$
277
$
987
$
807
Distribution
82
87
259
283
Connections
42
42
127
120
Other
6
8
21
19
Total
$
454
$
414
$
1,394
$
1,229
During the three and nine-month periods ended September 30, 2022, revenues benefited from inflationary tariff increases and capital commissioned into rate base.
b)Revenues from external customers
The following table disaggregates revenues by geographical region:
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Brazil
$
324
$
277
$
987
$
807
United Kingdom
130
137
407
422
Total
$
454
$
414
$
1,394
$
1,229
Our company’s revenues are generated from a diverse customer base, with only one customer that makes up greater than 10% of our company’s consolidated revenues. For the three and nine-month periods ended September 30, 2022, revenue generated from this customer was $324 million and $987 million, respectively (2021: $277 million and $807 million). Our company has completed a review of the credit risk of key counterparties. Based on their liquidity position, business performance, and aging of our accounts receivable, we do not have any significant changes in expected credit losses at this time. Our company continues to monitor the credit risk of our counterparties in light of the current economic environment.
13. DIRECT OPERATING COSTS
Direct operating costs are costs incurred to earn revenue and include all attributable expenses. The following table lists direct operating costs for the three and nine-month periods ended September 30, 2022, and 2021. Comparative figures have been reclassified to conform to the current period’s presentation:
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Depreciation and amortization
$
51
$
65
$
159
$
210
Transportation and distribution
37
40
117
120
Operations and maintenance
12
11
41
35
Compensation
14
9
44
29
Cost of inventory
1
3
5
6
Other
6
8
20
22
Total
$
121
$
136
$
386
$
422
Q3 2022 Interim Report 17
14. INCOME TAXES
For the nine-month period ended September 30, 2022, net income included a $90 million deferred tax recovery due to an internal restructuring at our Brazilian regulated gas transmission business. There was no impact to the three-month period ended September 30, 2022.
On May 24, 2021, Finance Bill 2021 in the U.K. became substantively enacted. As a result, effective April 2023, the U.K. tax rate will increase from 19% to 25%. During the nine-month period ended September 30, 2021, net income and accumulated other comprehensive income included $96 million and $87 million of deferred tax expenses, respectively, related to the rate change. There was no corresponding impact to the results for the three and nine-month periods ended September 30, 2022.
15. EQUITY
Our company’s equity is comprised of the following shares:
Class C shares
Shares outstanding
(Shares)1
Share capital (US$ Millions)
Balance at January 1, 2021
2,103,677
$
53
Share issuance
—
—
Balance at December 31, 2021 and September 30, 2022
2,103,677
$
53
1.Shares outstanding have been adjusted to effect for the change in shares due to the stock split. See Note 11, Financial Liabilities.
Our company’s share capital is comprised of exchangeable shares, class B shares and class C shares. Due to the exchange feature of the exchangeable shares and the cash redemption feature of the class B and class C shares, the exchangeable shares, the class B shares, and the class C shares are classified as financial liabilities. However, class C shares, the most subordinated of all common shares, meet certain qualifying criteria and are presented as equity instruments given the narrow scope presentation exceptions existing in IAS 32. Refer to Note 11, Financial Liabilities, for further details related to exchangeable and class B shares.
16. RELATED PARTY TRANSACTIONS
In the normal course of operations, our company entered into the transactions below with related parties. The ultimate parent of our company is Brookfield. Other related parties of our company represent Brookfield’s subsidiary and operating entities.
Since inception, our partnership has had a management agreement (the “Master Services Agreement”), with certain service providers (the “Service Providers”) which are wholly-owned subsidiaries of Brookfield.
Pursuant to the Master Services Agreement, on a quarterly basis, the partnership 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 combined market value of the partnership and our company. Our company reimburses the partnership for our proportionate share of the management fee. For purposes of calculating the base management fee, the market value of the partnership is equal to the aggregate value of all the outstanding units (assuming full conversion of Brookfield’s Redeemable Partnership Units in Brookfield Infrastructure into units), preferred units and securities of the other Service Recipients (as defined in the 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. The amount attributable to our company is based on weighted average units and shares outstanding, after retroactively adjusting for the special distribution.
The Base Management Fee attributable to our company was $16 million and $50 million for the three and nine-month periods ended September 30, 2022, respectively (2021: $11 million and $29 million, respectively) and has been recorded as part of general and administrative expenses in the interim financial statements.
Our company’s affiliates provide connection services in the normal course of operations on market terms to affiliates and associates of Brookfield Property Partners L.P. For the three and nine-month periods ended September 30, 2022, revenues of less than $1 million were generated (2021: less than $1 million) and $nil expenses were incurred (2021: $nil).
Our company is party to two credit agreements with Brookfield Infrastructure, one as borrower and one as lender, each providing for a ten-year revolving $1 billion credit facility for purposes of providing our company and Brookfield Infrastructure with access to debt financing on an as-needed basis and to maximize our flexibility and facilitate the movement of cash within our group. We intend to use the liquidity provided by the credit facilities for working capital purposes and to fund growth capital investments and acquisitions. The determination of which of these sources of funding our company will access in any particular situation will be a matter of optimizing needs and opportunities at that time.
18 Brookfield Infrastructure Corporation
The credit facilities are available in U.S. or Canadian dollars, and advances will be made by way of LIBOR, base rate, CDOR, or prime rate loans. Both operating facilities bear interest at the benchmark rate plus an applicable spread, in each case subject to adjustment from time to time as the parties may agree. In addition, each credit facility contemplates potential deposit arrangements pursuant to which the lender thereunder would, with the consent of a borrower, deposit funds on a demand basis to such borrower’s account at market interest rate. As of September 30, 2022, $nil (December 31, 2021: $nil) was drawn on the credit facilities under the credit agreements with Brookfield Infrastructure.
Brookfield Infrastructure provided our company an equity commitment in the amount of $1 billion. The equity commitment may be called by our company in exchange for the issuance of a number of class C shares or preferred shares, as the case may be, to Brookfield Infrastructure, corresponding to the amount of the equity commitment called divided (i) in the case of a subscription for class C shares, by the volume-weighted average of the trading price for one exchangeable share on the principal stock exchange on which our exchangeable shares are listed for the five (5) days immediately preceding the date of the call, and (ii) in the case of a subscription for preferred shares, $25.00. The equity commitment will be reduced permanently by the amount so called. As at September 30, 2022, $nil (December 31, 2021: $nil) was called on the equity commitment.
BIPC Holdings Inc., a wholly owned subsidiary of our company, fully and unconditionally guaranteed (i) any unsecured debt securities issued by Brookfield Infrastructure Finance ULC, Brookfield Infrastructure Finance LLC, Brookfield Infrastructure Finance Limited and Brookfield Infrastructure Finance Pty Ltd., which we refer to collectively as the “Co-Issuers”, in each case as to payment of principal, premium (if any) and interest when and as the same will become due and payable under or in respect of the trust indenture dated October 10, 2012 among the Co-Issuers and Computershare Trust Company of Canada under which such securities are issued, (ii) the senior preferred shares of BIP Investment Corporation (“BIPIC”), as to the payment of dividends when due, the payment of amounts due on redemption and the payment of amounts due on the liquidation, dissolution or winding up of BIPIC, (iii) certain of the partnership’s preferred units, as to payment of distributions when due, the payment of amounts due on redemption and the payment of amounts due on the liquidation, dissolution or winding up of the partnership, and (iv) the obligations of Brookfield Infrastructure under its bilateral credit facilities. These arrangements do not have or are not 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. In addition, BIPC Holdings Inc. guaranteed (i) subordinated debt securities issued by Brookfield Infrastructure Finance ULC or BIP Bermuda Holdings I Limited on a subordinated basis, as to payment of principal, premium (if any) and interest when and as the same will become due and payable under or in respect of the trust indenture under which such securities are issued, and (ii) the obligations of Brookfield Infrastructure Holdings (Canada) Inc. under its commercial paper program.
As at September 30, 2022, the balance outstanding on our deposit with Brookfield Infrastructure was $530 million (December 31, 2021: $1,093 million). The balance decreased from December 31, 2021 due to net drawdowns from Brookfield Infrastructure and the impact of foreign exchange. The deposit accrues interest at 0.2% per annum. As at September 30, 2022, the demand deposit payable to Brookfield Infrastructure was $26 million (December 31, 2021: $131 million) following settlements of $105 million during the period. The deposit payable accrues interest at 0.2% per annum. Interest incurred on the deposit payable to Brookfield Infrastructure during the three and nine-month periods ended September 30, 2022 was less than $1 million (2021: $6 million and $32 million, respectively).
As at September 30, 2022, our company had accounts payable of $8 million (December 31, 2021: $5 million) to subsidiaries of Brookfield Infrastructure and accounts receivable of $17 million (December 31, 2021: $20 million) from subsidiaries of Brookfield Infrastructure.
On September 23, 2022, our company sold a financial asset to the partnership for fair market value consideration of $66 million. Our company recognized a loss on disposal of $2 million in the unaudited interim condensed and consolidated statement of operating results.
Q3 2022 Interim Report 19
17. SUPPLEMENTAL CASH FLOW INFORMATION
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Interest paid
$
144
$
47
$
347
$
174
Income taxes paid
$
16
$
5
$
258
$
150
Amounts paid and received for interest were reflected as operating cash flows in the unaudited interim condensed and consolidated statements of cash flows. Interest paid is net of debt related hedges and includes dividends paid on our exchangeable shares classified as liabilities.
Amounts paid for income taxes were reflected as either operating cash flows or investing cash flows in the unaudited interim condensed and consolidated statements of cash flows depending upon the nature of the underlying transaction.
Details of “Changes in non-cash working capital, net” on the unaudited interim condensed and consolidated statements of cash flows are as follows:
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Accounts receivable
$
(20)
$
(17)
$
(64)
$
(73)
Accounts payable and other
39
69
78
64
Changes in non-cash working capital, net
$
19
$
52
$
14
$
(9)
20 Brookfield Infrastructure Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 AND
FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2022 AND 2021
INTRODUCTION
The following Management’s Discussion and Analysis (“MD&A”) is the responsibility of management of Brookfield Infrastructure Corporation (our “company”). This MD&A is dated November 14, 2022 and has been approved by the Board of Directors of our company 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 MD&A, pursuant to the authority delegated to it by the Board of Directors. The terms “we,” “us” and “our” refer to Brookfield Infrastructure Corporation, and our company’s direct and indirect operating entities as a group. This MD&A should be read in conjunction with our company’s most recently issued annual and interim financial statements. Additional information is available on our website at bip.brookfield.com/bipc, on SEDAR’s website at www.sedar.com and on EDGAR’s website at www.sec.gov.
The class A exchangeable subordinate voting shares (each, an “exchangeable share”) of our company are structured with the intention of being economically equivalent to the non-voting limited partnership units (“units”) of Brookfield Infrastructure Partners L.P. (the “partnership”, the “parent company” or, collectively with its subsidiaries, but excluding our company, “Brookfield Infrastructure”) (NYSE: BIP; TSX: BIP.UN). We believe economic equivalence is achieved through identical dividends and distributions on the exchangeable shares and the partnership’s units and each exchangeable share being exchangeable at the option of the holder for one unit of the partnership at any time. Given the economic equivalence, we expect that the market price of the exchangeable shares will be significantly impacted by the market price of the partnership’s units and the combined business performance of our company and Brookfield Infrastructure as a whole. In addition to carefully considering the disclosure made in this document, shareholders are strongly encouraged to thoroughly review the partnership’s periodic reporting. The partnership is required to file reports, including annual reports on Form 20-F, and other information with the United States Securities and Exchange Commission (the “SEC”). The partnership’s SEC filings are available to the public from the SEC’s website at http://www.sec.gov. Copies of documents that have been filed with the Canadian securities authorities can be obtained at www.sedar.com. Information about the partnership, including its SEC filings, is also available on its website at https://bip.brookfield.com. The information found on, or accessible through, https://bip.brookfield.com is not incorporated into and does not form a part of this MD&A.
In addition to historical information, this MD&A contains forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. See “Cautionary Statements Regarding Forward-Looking Statements”.
Basis of Presentation
Our unaudited interim condensed and consolidated financial statements (“interim 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”). Our interim financial statements include the accounts of our company and the entities over which it has control. Our company accounts for investments over which it exercises significant influence, but does not control, using the equity method. Non-IFRS measures used in this MD&A are reconciled to or calculated from such values. All dollar references, unless otherwise stated, are in millions of United States dollars (“USD”).
When we discuss our performance measures, we present our company’s share of results, in order to demonstrate the impact of key value drivers of each of these operating entities on the overall performance. As a result, our company’s share of 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 exclude the share of earnings of investments not held by our company apportioned to each of the above noted items. However, net income attributable to the parent company for each operating entity is consistent with results presented in accordance with IFRS.
Overview of our Company
Our company is a Canadian corporation incorporated under, and governed by, the laws of British Columbia. We were established by the partnership to be an alternative investment vehicle for investors who prefer owning our infrastructure operations through a corporate structure. While our current operations are utilities located in the U.K., Brazil and Australia, shareholders have exposure to several other markets across the transport, midstream, and data operating segments by virtue of the exchange feature of our company’s exchangeable shares. While our company has the option to settle the exchange obligation with cash or units of the partnership, we intend to deliver units.
Q3 2022 Interim Report 21
Our business is comprised of a U.K. regulated distribution operation, a Brazilian regulated natural gas transmission operation and an Australian regulated utility. 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 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 for prescribed periods of time. Thereafter, it may be subject to customary reviews based upon established criteria. Our diversified portfolio of assets allows 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 over time that should increase with investment of additional capital and inflation. Nearly all of our revenues are regulated or contractual.
Our company, our subsidiaries and Brookfield Infrastructure (collectively, our “group”), target a total return of 12% to 15% per annum on the infrastructure assets that it owns, measured over the long term. Our group intends 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. The partnership determines its distributions based primarily on an assessment of its operating performance. Our group uses funds from operations (“FFO”) to assess operating performance and can be used on a per unit basis as a proxy for future distribution growth over the long-term. For further details, see the “Performance Disclosures” section of this MD&A.
Dividend Policy
The partnership’s distributions are underpinned by stable, highly regulated and contracted cash flows generated from operations. The partnership’s objective is to pay a distribution that is sustainable on a long-term basis and has set its target payout ratio at 60-70% of the partnership’s FFO.
The board of directors of the general partner of the partnership approved a 6% increase in the partnership’s quarterly distribution to $0.36 per unit (or $1.44 per unit annualized), starting with the distribution paid in March 2022. This increase reflects the forecasted contribution from the partnership’s recently commissioned capital projects, as well as, the expected cash yield on recent acquisitions. The partnership targets 5% to 9% annual distribution growth in light of growth it foresees in its operations.
Our board may declare dividends at its discretion. However, each of our exchangeable shares has been structured with the intention of providing an economic return equivalent to one unit of the partnership. It is expected that dividends on our exchangeable shares will be declared and paid at the same time and in the same amount as distributions are declared and paid on the units of the partnership. Accordingly, our board approved an equivalent quarterly dividend of $0.36 per exchangeable share (or $1.44 per exchangeable share annualized), starting with the dividend paid in March 2022.
On June 10, 2022, Brookfield Infrastructure completed a three-for-two stock split of partnership units, BIPC exchangeable LP units, exchangeable shares, class B shares and class C shares, by way of a subdivision whereby unitholders/shareholders received an additional one-half of a unit/share for each unit/share held. All historical units/shares and per unit/share disclosures have been adjusted to effect for the change in units/shares due to the stock split.
22 Brookfield Infrastructure Corporation
RESULTS OF OPERATIONS
The following table summarizes the key financial results of our company for the three and nine-month periods ended September 30, 2022 and 2021:
US$ MILLIONS
For the three-month period ended September 30
For the nine-month period ended September 30
Summary Statements of Operating Results
2022
2021
2022
2021
Revenues
$
454
$
414
$
1,394
$
1,229
Direct operating costs(1)
(121)
(136)
(386)
(422)
General and administrative expenses
(17)
(12)
(54)
(32)
Interest expense
(147)
(77)
(392)
(208)
Share of earnings from investments in associates
8
—
4
—
Mark-to-market on hedging items and foreign currency revaluation
(44)
23
38
(2)
Remeasurement of exchangeable and class B shares
257
108
516
(168)
Other income (expense)
12
(30)
26
116
Income tax expense
(71)
(77)
(189)
(321)
Net income
331
213
957
192
Net income (loss) attributable to the partnership
229
122
529
(99)
1.Our company reclassified depreciation and amortization expense, which was previously presented as a separate line item, to direct operating costs. Direct operating costs include depreciation and amortization expenses of $51 million and $159 million for the three and nine-month periods ended September 30, 2022, respectively. Prior period amounts were also adjusted to reflect this change, which resulted in an increase to direct operating costs by $65 million and $210 million for the three and nine-month periods ended September 30, 2021, respectively, with an equal and offsetting decrease to depreciation and amortization expense. This reclassification had no impact on revenues or net income.
Three-month periods ended September 30, 2022 and 2021
For the three-month period ended September 30, 2022, our company reported net income of $331 million, of which $229 million was attributable to the partnership. This compares to net income of $213 million for the three-month period ended September 30, 2021, of which $122 million was attributable to the partnership. Net income for the current quarter benefited from inflation-indexation at our Brazilian regulated gas transmission business and capital commissioned into rate base at our U.K. regulated distribution business. Revaluation gains of $257 million were recognized on our company’s exchangeable shares that are classified as liabilities under IFRS. This compares to $108 million for the three-month period ended September 30, 2021.
Total revenues increased by $40 million relative to the same period during the prior year. Underlying gas transmission revenues in Brazil increased by $48 million due to inflation-indexation, partially offset by the depreciation of the Brazilian real which decreased our revenues in U.S. dollars by $1 million relative to 2021. Distribution revenues in the U.K. increased due to higher volumes and inflation-indexation which contributed additional revenues of $13 million. In addition, connections revenue increased by $7 million following an increase in construction activity compared to the prior year. These positive factors were more than offset by the depreciation of the British pound which decreased our revenues in U.S. dollars by $22 million relative to 2021.
Direct operating costs decreased by $15 million compared to the prior year. Increased costs due to inflation and organic growth were more than offset by a decrease in amortization expense associated with a new legislation passed in 2021 in Brazil, which extended the useful life of our intangible assets, and the impact of foreign exchange.
General and administrative expenses totaled $17 million for the three-month period ended September 30, 2022, an increase of $5 million compared to the same period in 2021. This line item primarily consists of the base management fee that is paid to Brookfield based on our company’s and the partnership’s combined market value plus net recourse debt, and allocated to our company based on proportionate weighted average shares outstanding during the period. The base management fee allocated to our company increased by $5 million due to an increase in the combined market value of our company and the partnership. In addition, exchangeable shares represent a greater share of total shares/units outstanding compared to the prior year as a result of the issuance of exchangeable shares associated with the partnership’s acquisition of Inter Pipeline Ltd (“IPL”).
Interest expense for the three-month period ended September 30, 2022 increased by $70 million to $147 million. This increase was primarily due to incremental charges associated with debt issued at our Brazilian regulated gas transmission business to fund the deferred consideration paid in April 2022, and an increase in the interest rates on our variable rate non-recourse borrowings. Current year results were further impacted by an increase in dividends paid on our exchangeable shares, classified as interest expense, due to an increase in share count. These increases were partially offset by a decrease in interest incurred on loans payable to Brookfield Infrastructure as a result of repayments made in the prior year.
Q3 2022 Interim Report 23
Mark-to-market on hedging items and foreign currency revaluation losses totaled $44 million for the three-month period ended September 30, 2022, compared to gains of $23 million in the prior year. This primarily relates to foreign currency translation losses on our Canadian denominated deposit receivable with the partnership as the Canadian dollar depreciated by 7% during the current quarter. In the prior year, the Canadian dollar depreciated by 2%, resulting in a gain on our net deposit payable to the partnership at the time.
Remeasurement gains, which relate to the revaluation of our exchangeable shares classified as liabilities, were $257 million for the three-month period ended September 30, 2022, compared to $108 million in the prior year. The remeasurement gains reflect the decrease in the market price of partnership units based on the NYSE closing price as well as the issuance of approximately 15 million exchangeable shares during the past year, predominantly in connection with the partnership’s acquisition of IPL in 2021. The prior year included a gain recognized on the issuance of approximately 27 million exchangeable shares in connection with the partnership’s acquisition of IPL, which were initially recognized at fair value and subsequently remeasured to reflect changes in the contractual cash flows associated with their exchangeable features.
Other income for the three-month period ended September 30, 2022 was $12 million, compared to other expenses of $30 million in the prior year. Other expenses in the prior year included a loss of $19 million on the forward subscription agreement with the partnership based on the difference between the market price of an exchangeable share on the date of each issuance and the subscription price, as well as accretion expense on deferred consideration at our Brazilian regulated gas transmission business which was settled in April 2022. Other income in the current period primarily relates to interest income earned on excess cash placed on deposit of $16 million.
Income tax for the three-month period ended September 30, 2022 was $71 million compared to $77 million in the prior year. The decrease in income tax expense was primarily due to the tax benefit of foreign currency translation losses on U.S. dollar denominated debt at our Brazilian regulated gas transmission business.
Nine-month periods ended September 30, 2022 and 2021
For the nine-month period ended September 30, 2022, our company reported net income of $957 million, of which $529 million was attributable to the partnership. This compares to a net income of $192 million for the nine-month period ended September 30, 2021, of which a loss of $99 million was attributable to the partnership. Net income for the current period benefited from inflation-indexation at our Brazilian regulated gas transmission business and capital commissioned into rate base at our U.K. regulated distribution business. Revaluation gains of $516 million were recognized on our company’s exchangeable shares that are classified as liabilities under IFRS. This compares to revaluation losses of $168 million for the nine-month period ended September 30, 2021, which resulted in a net loss attributable to the partnership. Net income in the prior year also included a gain recognized on the sale of the smart meter portfolio at our U.K. regulated distribution business.
Total revenues increased by $165 million relative to the same period during the prior year. Gas transmission revenues in Brazil increased by $143 million due to inflation-indexation while higher average foreign exchange rates of the Brazilian real during the current year further increased our revenues in U.S. dollars by $37 million. Connections revenue in the U.K. benefited from an increase in construction activity which contributed additional revenues of $20 million compared to the prior year. In addition, distribution revenues increased primarily due to inflation-indexation and contributed additional revenues of $5 million. These positive factors were more than offset by the depreciation of the British pound which decreased our revenues in U.S. dollars by $41 million.
Direct operating costs for the nine-month period ended September 30, 2022 were $386 million, a decrease of $36 million compared to the prior year. Increased costs due to inflation and organic growth were more than offset by a decrease in amortization expense associated with a new legislation passed in 2021 in Brazil, which extended the useful life of our intangible assets, a decrease in depreciation expense associated with the sale of our smart meter business in the U.K. in May 2021, and the impact of foreign exchange.
General and administrative expenses totaled $54 million for the nine-month period ended September 30, 2022, an increase of $22 million compared to the same period in 2021. This line item primarily consists of the base management fee that is paid to Brookfield based on our company and the partnership’s combined market value plus net recourse debt, and allocated to our company based on proportionate weighted average shares outstanding during the period. The base management fee allocated to our company increased by $21 million primarily due to an increase in the combined market value of our company and the partnership compared to the same period in 2021. In addition, exchangeable shares represent a greater share of total shares/units outstanding compared to the prior year as a result of the issuance of exchangeable shares associated with the partnership’s acquisition of IPL.
Interest expense for the nine-month period ended September 30, 2022 was $392 million, an increase of $184 million compared to the same period in 2021. This increase was primarily due to incremental charges associated with debt issued at our Brazilian regulated gas transmission business to fund the deferred consideration paid in April 2022, and an increase in the interest rates on our variable rate non-recourse borrowings. Current year results were further impacted by an increase in dividends paid on our exchangeable shares, classified as interest expense, due to an increase in share count. These increases were partially offset by a decrease in interest incurred on loans payable to Brookfield Infrastructure as a result of repayments made in the prior year.
24 Brookfield Infrastructure Corporation
Mark-to-market on hedging items and foreign currency revaluation gains totaled $38 million for the nine-month period ended September 30, 2022, compared to losses of $2 million in the prior year. This increase was primarily due to the impact of foreign exchange revaluation on the deferred consideration paid, denominated in U.S. dollars, at our Brazilian regulated gas transmission business. As a result of the appreciation of the Brazilian real against the U.S. dollar, a translation gain was recognized on settlement of the U.S. denominated financial liability in the functional currency. This was partially offset by foreign currency translation losses on our Canadian denominated deposit receivable with the partnership as a result of the depreciation of the Canadian dollar during the nine-month period ended September 30, 2022. In the same period in the prior year, the Canadian dollar appreciated by less than 1%.
Remeasurement gains for the nine-month period ended September 30, 2022 were $516 million compared to losses of $168 million in the prior year. The remeasurement gains reflect the decrease in the market price of partnership units, based on the NYSE closing price, compared to an increase in the prior year as well as the issuance of approximately 15 million exchangeable shares during the past year, predominantly in connection with the partnership’s acquisition of IPL in 2021. Losses in the prior year were partially offset by a gain recognized on the issuance of approximately 27 million exchangeable shares in connection with the acquisition of IPL, which were initially recognized at fair value and subsequently remeasured to reflect changes in the contractual cash flows associated with their exchangeable features.
Other income for the nine-month period ended September 30, 2022 was $26 million, a decrease of $90 million compared to the same period in the prior year. Other income in the prior year included a gain recognized on the sale of the smart meter portfolio at our U.K. regulated distribution business of $175 million, partially offset by a loss of $19 million on the forward subscription agreement with the partnership based on the difference between the market price of an exchangeable share on the date of each issuance and the subscription price, as well as accretion expense on deferred consideration at our Brazilian regulated gas transmission business which was settled in April 2022. Other income in the current period includes interest income earned on excess cash placed on deposit of $45 million partially offset by accretion expense on the deferred consideration settled in April 2022.
Income tax expense for the nine-month period ended September 30, 2022 was $189 million, a decrease of $132 million compared to the prior year. Income tax in the current period benefited from the recognition of a deferred tax asset of $90 million associated with remeasurement of valuation allowances, partially offset by an increase in current taxes as a result of higher income at our Brazilian regulated gas transmission business. Prior year results were impacted by an increase in future U.K. tax rates from 19% to 25%, which resulted in the recognition of an incremental income tax expense of $96 million.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
The following table summarizes the statements of financial position of our company as at September 30, 2022 and December 31, 2021:
US$ MILLIONS
As of
Summary Statements of Financial Position Key Metrics
September 30, 2022
December 31, 2021
Cash and cash equivalents
$
265
$
469
Due from Brookfield Infrastructure
530
1,093
Property, plant and equipment
4,177
4,803
Intangible assets
2,745
2,687
Investment in associates
410
—
Total assets
9,239
10,086
Loans payable to Brookfield Infrastructure
26
131
Exchangeable and class B shares
3,967
4,466
Non-recourse borrowings
4,265
3,556
Total liabilities
10,467
11,510
Equity in net assets attributable to the partnership
(1,867)
(2,127)
Total equity
(1,228)
(1,424)
Total assets were $9.2 billion at September 30, 2022, compared to $10.1 billion at December 31, 2021. Our company added $0.3 billion to property, plant and equipment and acquired an 8% interest in an Australian regulated utility which increased total assets by $0.4 billion. These increases were more than offset by a reduction in our company’s deposit with Brookfield Infrastructure and the impact of foreign exchange which decreased total assets by $0.6 billion and $0.8 billion, respectively.
Our accounting policy is to carry property, plant and equipment at fair value and intangible assets at amortized cost. Our last revaluation date for the measurement of property, plant and equipment, as well as the testing of intangible assets and goodwill for impairment, was December 31, 2021. Our valuation of property, plant and equipment is underpinned by regulated cash flow. Our local revenues have been predominantly unimpacted by the recent changes in the macroeconomic environment as we earn a regulated return on an asset base for making the infrastructure available to users with minimal volume and price risk. Given the stable cash flows generated by our business, we believe the long-term value of these assets has not changed significantly from our most recent valuation.
Q3 2022 Interim Report 25
Our exchangeable and class B shares are classified as liabilities due to their exchangeable and cash redemption features. Subsequent to initial recognition at fair value, the shares are measured at amortized cost and remeasured to reflect changes in the contractual cash flows associated with the shares. These contractual cash flows are based on the price of one partnership unit. As at September 30, 2022, the shares were remeasured to reflect the NYSE closing price of one partnership unit, or $35.90 per share.
Non-recourse borrowings increased by $0.7 billion to $4.3 billion at September 30, 2022. This increase was primarily due to $1.0 billion of additional debt issued to finance the deferred consideration paid in April 2022 at our Brazilian regulated gas transmission business. This increase was partially offset by the impact of foreign exchange which decreased non-recourse borrowings by $0.4 billion.
As of September 30, 2022, loans payable to subsidiaries of Brookfield Infrastructure decreased by $105 million to $26 million as a result of repayments during the period.
Total equity was negative $1.2 billion as at September 30, 2022, compared to negative $1.4 billion at December 31, 2021. The increase is mainly due to remeasurement gains as a result of the revaluation of our exchangeable shares classified as liabilities, partially offset by the impact of foreign exchange and distributions to non-controlling interests.
Foreign Currency Translation
A discussion of the most significant currency exchange rates that impact our company are set forth below as at and for the periods indicated:
Period End Rate
Average Rate
As of
For the three-month period ended September 30
For the nine-month period ended September 30
September 30, 2022
December 31, 2021
Change
2022
2021
Change
2022
2021
Change
Brazilian real
0.1850
0.1792
3
%
0.1906
0.1913
—
%
0.1947
0.1876
4
%
British pound
1.1170
1.3532
(17)
%
1.1766
1.3779
(15)
%
1.2571
1.3851
(9)
%
Australian dollar
0.6401
0.7262
(12)
%
0.6832
0.7347
(7)
%
0.7071
0.7589
(7)
%
The net assets of our U.K. regulated distribution business, our Brazilian regulated transmission business and our Australian regulated utility represent 61%, 21% and 18% of our equity in foreign subsidiaries, respectively.
The following table disaggregates the impact of foreign currency translation on the equity of our company by the most significant non-U.S. currencies for the periods indicated:
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Brazilian real
$
(20)
$
(123)
$
14
$
(79)
British pound
(121)
(40)
(282)
12
Australian dollar
(33)
—
(52)
—
$
(174)
$
(163)
$
(320)
$
(67)
Attributable to:
The partnership
$
(137)
$
(70)
$
(274)
$
(9)
Non-controlling interests
(37)
(93)
(46)
(58)
$
(174)
$
(163)
$
(320)
$
(67)
The impact of foreign currency translation on our company, including those attributable to non-controlling interests, for the three and nine-month periods ended September 30, 2022, was a decrease to equity of $174 million and $320 million, respectively (2021: decrease of $163 million and $67 million, respectively). The decrease in equity during the three and nine-month periods was primarily due to the depreciation of the British pound relative to the U.S. dollar.
Average currency exchange rates impact the U.S. dollar equivalents of revenues and net income from non-U.S. operations on a comparative basis. During the three-month period ended September 30, 2022, the Brazilian real remained relatively consistent with the prior year but appreciated relative to the U.S. dollar during the nine-month period ended September 30, 2022. The depreciation of the British pound and Australian dollar reduced our revenues and net income in U.S. dollars during the three-month period ended September 30, 2022. Our revenues and net income in U.S. dollars benefited from the appreciation of the Brazilian real during the nine-month period ended September 30, 2022. The benefits to revenues and net income in U.S. dollars were more than offset and partially offset, respectively, by the depreciation of the British pound and Australian dollar.
26 Brookfield Infrastructure Corporation
Summary Financial Information Related to the Partnership
As the market price of our exchangeable shares is expected to be significantly impacted by the market price of the units and the combined business performance of our group as a whole, we are providing the following summary financial information regarding the partnership. For further details please review the partnership’s periodic reporting referenced in the introductory section of this MD&A.
US$ MILLIONS
For the three-month period ended September 30
For the nine-month period ended September 30
IFRS measures
2022
2021
2022
2021
Revenue
$
3,627
$
2,939
$
10,719
$
8,285
Net income
361
536
1,080
2,255
US$ MILLIONS
As of
IFRS measures
September 30, 2022
December 31, 2021
Total assets
$
71,960
$
73,961
Total liabilities
46,906
47,570
Total partnership capital
25,054
26,391
PERFORMANCE DISCLOSURES
To measure performance, we focus on net income, an IFRS measure, as well as certain non-IFRS measures, including FFO, AFFO, Adjusted EBITDA and Adjusted Net Income. FFO, AFFO, Adjusted EBITDA and Adjusted Net Income are proportionate measures and are not calculated in accordance with, and do not have any standardized meaning prescribed by IFRS as issued by the IASB and may differ from, and not be comparable to, similar measures presented by other issuers.
FFO
We define FFO as net income excluding the impact of depreciation and amortization, deferred income taxes, mark-to-market on hedging items and other income (expenses) that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. We exclude from FFO dividends paid on the exchangeable shares of our company that are presented as interest expense, as well as the interest expense on loans payable to the partnership which represent the partnership’s investment in our company.
FFO includes balances attributable to our company generated by investments in associates accounted for using the equity method and excludes amounts attributable to non-controlling interests based on the economic interests held by non-controlling interests in consolidated subsidiaries.
FFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by IFRS. FFO is therefore unlikely to be comparable to similar measures presented by other issuers. FFO has limitations as an analytical tool. Specifically, our definition of FFO may differ from the definition used by other organizations, and is different than 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.
AFFO
We define AFFO as FFO less capital expenditures required to maintain the current performance of our operations (maintenance capital expenditures). AFFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by IFRS. AFFO is therefore unlikely to be comparable to similar measures presented by other issuers and has limitations as an analytical tool.
Adjusted EBITDA
We focus on Adjusted EBITDA which we define as net income excluding the impact of interest expense, depreciation and amortization, income taxes, mark-to-market on hedging items and other income (expenses) corresponding to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations.
Adjusted EBITDA includes balances attributable to our company generated by investments in associates accounted for using the equity method and excludes amounts attributable to non-controlling interests based on the economic interests held by non-controlling interests in consolidated subsidiaries.
Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by IFRS. Adjusted EBITDA is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted EBITDA has limitations as an analytical tool.
Q3 2022 Interim Report 27
Adjusted Net Income
We also focus on Adjusted Net Income, previously referred to as Adjusted Earnings, which we define as net income excluding the impact of dividends paid and remeasurement gains/losses on the exchangeable shares of our company, and interest and foreign currency translation adjustments on intercompany loans with the partnership. Aside from the change in naming convention from Adjusted Earnings to Adjusted Net Income, there have been no changes to the definition, calculation or use of this non-IFRS measure.
Adjusted Net Income includes balances attributable to our company generated by investments in associates accounted for using the equity method and excludes amounts attributable to non-controlling interests based on the economic interests held by non-controlling interests in consolidated subsidiaries.
Adjusted Net Income is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by IFRS. Adjusted Net Income is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted Net Income has limitations as an analytical tool.
Benefits and Uses of Non-IFRS Measures
We believe our presentation of FFO, AFFO, Adjusted EBITDA and Adjusted Net Income are useful to investors because it supplements investors’ understanding of our operating performance by providing information regarding our ongoing performance that excludes items we believe do not directly affect our operations. Our presentation of FFO, AFFO, Adjusted EBITDA and Adjusted Net Income also provide investors enhanced comparability of our ongoing performance across periods.
In deriving FFO, AFFO and Adjusted EBITDA, we add back depreciation and amortization to net income. Specifically, in our financial statements we use the revaluation approach in accordance with IAS 16, Property, Plant and Equipment, whereby depreciation expense is determined based on a revalued amount, thereby reducing comparability with our peers who do not report under IFRS as issued by the IASB or who do not employ the revaluation approach to measuring property, plant and equipment. We add back deferred income taxes on the basis that we do not believe this item reflects the present value of the actual tax obligations that we expect to incur over our long-term investment horizon. Finally, we add back the impact of mark-to-mark on hedging items and other income (expenses) corresponding to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations.
To provide a supplemental understanding of the performance of our business and to enhance comparability across periods and relative to our peers we utilize Adjusted EBITDA. Adjusted EBITDA excludes the impact of interest expense and income taxes to assist in assessing the operating performance of our business by eliminating for the effect of its current capital structure and tax profile.
While FFO provides a basis for assessing current operating performance, it does not take into consideration the cost to sustain the operating performance of the partnership’s asset base. In order to assess the long-term, sustainable operating performance of our businesses, we observe that investors take into account the impact of maintenance capital expenditures to derive AFFO, in addition to FFO.
For further details regarding our use of FFO, AFFO, Adjusted EBITDA and Adjusted Net Income, as well as a reconciliation of net income to these measures, see the “Reconciliation of Non-IFRS Financial Measures” section of this MD&A.
28 Brookfield Infrastructure Corporation
US$ MILLIONS
For the three-month period ended September 30
For the nine-month period ended September 30
Key Metrics
2022
2021
2022
2021
Adjusted EBITDA(1)
$
182
$
149
$
521
$
438
Funds from Operations (FFO)(1)
119
112
337
334
Adjusted Funds from Operations (AFFO)(1)
112
107
314
320
Adjusted Net Income(1)
48
47
181
195
1.Non-IFRS measures, please refer to the “Reconciliation of Non-IFRS Financial Measures” section of this MD&A.
For the three-month period ended September 30, 2022, Adjusted EBITDA and FFO increased by $33 million and $7 million, respectively, compared to the same period in the prior year. During the current period, Adjusted EBITDA and FFO benefited from inflation-indexation and the acquisition of our Australian regulated utility in February 2022. Our results further benefited from capital commissioned into rate base and higher connections activity at our U.K. regulated distribution business. These positive factors were partially offset by higher management fees and the impact of foreign exchange. FFO was also impacted by an increase in interest expense associated with additional debt issued at our Brazilian regulated gas transmission business to fund the deferred consideration paid in April 2022, and higher interest rates on our variable rate non-recourse borrowings.
For the three-month period ended September 30, 2022, Adjusted Net Income increased by $1 million compared to the same period in the prior year. While Adjusted Net Income was also impacted by the factors mentioned above, mark-to-market losses and other fair value changes also reduced Adjusted Net Income during the three-month period ended September 30, 2022.
The following table disaggregates our operating performance between our utilities operations and the corporate, general and administrative costs.
US$ MILLIONS
For the three-month period ended September 30, 2022
Key Metrics
Utilities
Corporate
Total
Adjusted EBITDA(1)
$
199
$
(17)
$
182
Funds from Operations (FFO)(1)
136
(17)
119
Adjusted Funds from Operations (AFFO)(1)
129
(17)
112
US$ MILLIONS
For the nine-month period ended September 30, 2022
Key Metrics
Utilities
Corporate
Total
Adjusted EBITDA(1)
$
575
$
(54)
$
521
Funds from Operations (FFO)(1)
391
(54)
337
Adjusted Funds from Operations (AFFO)(1)
368
(54)
314
1.Non-IFRS measures, please refer to the “Reconciliation of Non-IFRS Financial Measures” section of this MD&A.
UTILITIES
Results of Operations
Our company earns a return on a regulated or notionally stipulated asset base, which we refer to as rate base. Our rate base reflects the current amount, either as defined by the regulator or as implied by our contracted cash flows, on which we earn our return. Our rate base increases with capital that we invest to expand our systems and is indexed to local inflation. The return that we earn is typically determined by a regulator for prescribed periods of time or is derived based on the contracted cash flows we have secured. We believe that the rate base is useful for investors as it provides them with an understanding of the unlevered returns our asset base can currently generate and enhances comparability across other utility investments as it assists in assessing the operating performance of our company by eliminating the effect of its current capital structure and tax profile.
Q3 2022 Interim Report 29
The following table presents our company’s share of the rate base of our utilities businesses as at September 30, 2022 and December 31, 2021:
As of
US$ MILLIONS
September 30, 2022
December 31, 2021
Rate base
$
4,340
$
3,961
The following table presents our company’s share of key measures of our utilities business for the three and nine-month periods ended September 30, 2022 and 2021:
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Adjusted EBITDA(1),(2)
$
199
$
161
$
575
$
470
Funds from Operations (FFO)(1),(2)
136
124
391
366
Adjusted Funds from Operations (AFFO)(1),(2)
129
119
368
352
1.Non-IFRS measures, please refer to the “Reconciliation of Non-IFRS Financial Measures” section of this MD&A.
2.Adjusted EBITDA, FFO and AFFO provided in the table above do not reflect the annual base management fee our company pays for the periods indicated to Brookfield pursuant to the Master Services Agreement or other corporate, general and administrative service costs as described below in this MD&A under “Corporate, General and Administrative Services”.
Three-month periods ended September 30, 2022 and 2021
For the three-month period ended September 30, 2022, Adjusted EBITDA and FFO for our utilities businesses were $199 million and $136 million, respectively, compared to $161 million and $124 million, respectively, in 2021. In the current quarter, Adjusted EBITDA and FFO benefited from inflation-indexation and the acquisition of our Australian regulated utility. Current quarter results also benefited from capital commissioned into rate base and increased levels of connections activity at our U.K. regulated distribution business. While FFO benefited from the aforementioned factors, these benefits were partially offset by an increase in interest expense associated with higher borrowings and higher interest rates on our variable rate non-recourse borrowings.
The following table presents the roll-forward of our company’s share of rate base:
US$ MILLIONS
For the three-month period ended September 30, 2022
For the nine-month period ended September 30, 2022
For the 12 month period ended December 31, 2021
Rate base, start of period
$
4,610
$
3,961
$
3,485
Acquisitions
—
682
125
Capital expenditures commissioned
65
188
262
Inflation and other indexation
10
124
250
Regulatory depreciation
(9)
(33)
(50)
Foreign exchange and other
(336)
(582)
(111)
Rate base, end of period
$
4,340
$
4,340
$
3,961
Our rate base increased compared to year-end as a result of the acquisition of our Australian regulated utility, new connections at our U.K. regulated distribution business and inflation-indexation at our Brazilian regulated gas transmission business, partially offset by depreciation and the impact of foreign exchange.
30 Brookfield Infrastructure Corporation
Capital Backlog and Capital Expenditures
Capital expenditures completed during the periods provided in the table below consist of organic growth projects at our U.K. regulated distribution business and our Australian regulated utility business. Projects include the build-out of last-mile natural gas, electricity, fiber, water, wastewater and district heating connections for the home. There have been no material capital expenditures at our company’s Brazilian operations during the periods provided below. The table below summarizes our company’s share of capital backlog, which represents projects that have been awarded or filed with regulators that are expected to occur over the next three years, and the historical capital expenditures for the periods presented related to our existing utility order book:
US$ MILLIONS
For the three-month period ended September 30, 2022
For the nine-month period ended September 30, 2022
For the 12 month period ended December 31, 2021
Capital backlog, start of period
$
318
$
287
$
365
Additional capital project mandates
106
301
343
Acquisitions (asset sales)
—
70
(130)
Less: capital expenditures
(96)
(284)
(293)
Foreign exchange and other
(27)
(73)
2
Capital backlog, end of period
301
301
287
Construction work in progress
325
325
287
Total capital to be commissioned
$
626
$
626
$
574
These capital projects are financed with a combination project-level financing, which has no recourse to our company, as well as operating cash flows generated and retained within our company. Capital backlog consists primarily of a contracted order book of gas and electricity connections at our U.K. regulated distribution business that is expected to be commissioned over the next three years. Our order book currently totals approximately 1.5 million connections. Capital to be commissioned increased due to additional capital projects and the acquisition of our Australian regulated utility partially offset by capital commissioned and the impact of foreign exchange.
Corporate, General and Administrative Services
Pursuant to the Master Services Agreement, the partnership pays Brookfield an annual base management fee equal to 1.25% of the partnership’s and our company’s combined market value plus net recourse debt. Our company is allocated a portion of the management fee based on proportionate weighted average shares outstanding during the period.
Three-month periods ended September 30, 2022 and 2021
For the three-month period ended September 30, 2022, the base management fee under the Master Services Agreement was $16 million, an increase of $5 million compared to the same period during the prior year mainly driven by the increase in combined market value of the partnership and our company, as well as the issuance of additional shares by our company. In addition, exchangeable shares represent a greater share of total shares/units outstanding compared to the prior year as a result of the issuance of exchangeable shares associated with the partnership’s acquisition of IPL. Our company also incurred $1 million in other general and administrative expenses during the quarter, in line with prior year.
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 and Adjusted Net Income. These non-IFRS measures are presented for our utilities operations both before and after the allocation of corporate, general and administrative expenses. Providing underlying performance for our utilities operations prior to allocated corporate expenses assists the comparability of our performance relative to other public utilities companies.
Adjusted EBITDA, FFO, AFFO and Adjusted Net Income are presented based on our company’s share of results in operations accounted for using the consolidation and the equity method whereby we either control or exercise significant influence over the investment. Proportionate financial information is not, and is not intended to be, presented in accordance with IFRS. The presentation of the assets and liabilities and revenues and expenses do not represent our legal claim to such items, and the removal of financial statement amounts that are attributable to non-controlling interests does not extinguish our company’s legal claims or exposures to such items.
Q3 2022 Interim Report 31
We provide financial results attributable to our company because we believe it assists investors and analysts in estimating our overall performance and understanding our company’s share of results from its underlying investments which have varying economic ownership interests and financial statement presentations when determined in accordance with IFRS. We believe our presentation, when read in conjunction with our company’s reported results under IFRS, provides the most meaningful assessment of how our operations are performing and capital is being managed. The presentation of Adjusted EBITDA, FFO, AFFO and Adjusted Net Income has limitations as an analytical tool, including the following:
•The amounts shown on the individual line items were derived by applying our overall economic ownership interest percentage and do not necessarily represent our legal claim to the assets and liabilities, or the revenues and expenses;
•Other companies may calculate proportionate results differently than we do.
Because of these limitations, our financial information presented based on our company’s share in the underlying operations should not be considered in isolation or as a substitute for our financial statements as reported under IFRS.
Net income is the most directly comparable IFRS measure to FFO, AFFO, Adjusted EBITDA and Adjusted Net Income. 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 company.
FFO has limitations as an analytical tool:
•FFO does not include certain non-recurring charges such as breakage and transaction costs or non-cash valuation gains and losses.
•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;
•FFO does not include the impact of mark-to-market on hedging items; and
•FFO does not include other income (expenses) corresponding to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations.
FFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by IFRS. FFO is therefore unlikely to be comparable to similar measures presented by other issuers. FFO has limitations as an analytical tool. Specifically, our definition of FFO may differ from the definition used by other organizations, and is different than 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.
FFO is a key measure that we use to evaluate the performance of our operations and forms the basis for our company’s distribution policy.
We believe that FFO, when viewed in conjunction with our IFRS results, provides a more complete understanding of factors and trends affecting our underlying operations. FFO allows us to evaluate our company on the basis of cash return on invested capital by removing the effect of non-cash and other items.
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. Specifically, in our financial statements we use the revaluation approach in accordance with IAS 16, Property, Plant and Equipment, whereby depreciation expense is determined based on a revalued amount, thereby reducing comparability with our peers who do not report under IFRS as issued by the IASB or who do not employ the revaluation approach to measuring property, plant and equipment. 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 the impact of mark-to-market on hedging items which indicate a point-in-time approximation of value on items we consider long-term. We also add back other income (expenses) that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Finally, we add back dividends paid on the exchangeable shares of our company that are presented as interest expense, as well as interest expense on loans payable to the partnership as these items represent the partnership’s investment in our company.
32 Brookfield Infrastructure Corporation
We define AFFO 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 the asset base. In order to assess the long-term, sustainable operating performance of our company, we observe that in addition to FFO, investors use AFFO by taking into account the impact of maintenance capital expenditures. AFFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by IFRS. AFFO is therefore unlikely to be comparable to similar measures presented by other issuers and has limitations as an analytical tool.
In addition to FFO and AFFO, we focus on Adjusted EBITDA, which we define as net income excluding the impact of interest expense, depreciation and amortization, income taxes, mark-to-market on hedging items and other income (expenses) corresponding to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Adjusted EBITDA provides a supplemental understanding of the performance of our company and enhanced comparability across periods and relative to our peers. In addition to the adjustments to FFO, 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 company. Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by IFRS. Adjusted EBITDA is therefore unlikely to be comparable to similar measures presented by other issuers and has limitations as an analytical tool.
We also focus on Adjusted Net Income, previously referred to as Adjusted Earnings, which we define as net income excluding the impact of dividends paid and remeasurement gains/losses on the exchangeable shares of our company, and interest and foreign currency translation adjustments on intercompany loans with the partnership. Our company’s exchangeable and class B shares are classified as liabilities due to their exchangeable and cash redemption features and are remeasured to reflect changes in the contractual cash flows associated with the shares based on the NYSE closing price of one unit. We exclude the remeasurement gains or losses as these items are not reflective of the ongoing performance of our underlying operations. Dividends paid on the exchangeable shares of our company, which are presented as interest expense under IFRS, are excluded from Adjusted Net Income as they represent distributions of our company’s earnings to shareholders. Intercompany loans with the partnership represent the partnership’s investment in our company and therefore associated interest and foreign currency translation adjustments are excluded. Adjusted Net Income is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by IFRS. Adjusted Net Income is therefore unlikely to be comparable to similar measures presented by other issuers and has limitations as an analytical tool. Aside from the change in naming convention from Adjusted Earnings to Adjusted Net Income, there have been no changes to the definition, calculation or use of this non-IFRS measure.
When viewed with our IFRS results, we believe that Adjusted Net Income 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.
Q3 2022 Interim Report 33
A reconciliation of the most closely-related IFRS measure, net income, to FFO and AFFO is as follows:
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Net income
$
331
$
213
$
957
$
192
Add back or deduct the following:
Depreciation and amortization
51
65
159
210
Share of earnings from investments in associates
(8)
—
(4)
—
FFO contribution from investments in associates
19
—
39
—
Deferred income tax expense (recovery)
18
17
(64)
157
Mark-to-market on hedging items and foreign currency revaluation
44
(23)
(38)
2
Gains on disposition of subsidiaries(1)
—
—
—
(175)
Other (income) expenses(2)
(7)
32
24
63
Remeasurement of exchangeable and class B shares
(257)
(108)
(516)
168
Dividends classified as interest expense and interest expense on intercompany loans
39
38
119
110
FFO attributable to non-controlling interests(3)
(111)
(122)
(339)
(393)
FFO
119
112
337
334
Maintenance capital expenditures
(7)
(5)
(23)
(14)
AFFO
$
112
$
107
$
314
$
320
1.Gains on disposition of subsidiaries are presented net of gains/losses relating to foreign currency translation reclassified from accumulated comprehensive income to other income (expense) on the Consolidated Statement of Operating Results.
2.Other (income) expenses correspond to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Other (income) expenses excluded from FFO primarily include fair value remeasurement gains/losses and accretion expense on deferred consideration.
3.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting FFO attributable to non-controlling interests, our company is able to remove the portion of FFO earned at non-wholly owned subsidiaries that are not attributable to our company.
All reconciling amounts from net income to FFO presented above are taken directly from the interim financial statements, and in the case of “Contribution from investments in associates” and “Attributable to non-controlling interests”, our company’s share of FFO relating thereto are derived using the accounting policies consistent with those applied in our company’s interim financial statements; FFO for these items is calculated on the same basis as consolidated entities, as disclosed above, and is calculated by applying the same ownership percentages used in calculating our company’s share of equity accounted income and the corresponding elimination of non-controlling interests in accordance with IAS 28, Investments in Associates and Joint Ventures and IFRS 10, Consolidated Financial Statements, respectively.
For the three and nine-month periods ended September 30, 2022, the differences between net income and FFO are predominantly due to depreciation and amortization expense, remeasurement gains and losses on our exchangeable and class B shares, and FFO attributable to non-controlling interests. Depreciation and amortization expense has decreased from prior year as a result of a new legislation passed in 2021 in Brazil, which extended the estimated useful life of our intangible assets. Remeasurement gains primarily relate to the decrease in the market price of partnership units as well as the issuance of exchangeable shares during the past year. FFO attributable to non-controlling interests decreased relative to the prior year as the benefits of organic growth were offset by higher financing costs at our Brazilian regulated gas transmission business.
The difference between net income and AFFO is due to the aforementioned items in addition to maintenance capital expenditures of $7 million and $23 million for the three and nine-month periods ended September 30, 2022, respectively (2021: $5 million and $14 million, respectively).
34 Brookfield Infrastructure Corporation
The following table reconciles net income, the most directly comparable IFRS measure, to Adjusted EBITDA, a non-IFRS measure. Adjusted EBITDA is presented based on our proportionate share of results in operations accounted for using the consolidation methods.
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Net income
$
331
$
213
$
957
$
192
Add back or deduct the following:
Depreciation and amortization
51
65
159
210
Interest expense
147
77
392
208
Share of earnings from investments in associates
(8)
—
(4)
—
Adjusted EBITDA contribution from investments in associates
23
—
50
—
Income tax expense
71
77
189
321
Mark-to-market on hedging items and foreign currency revaluation
44
(23)
(38)
2
Gains on disposition of subsidiaries(1)
—
—
—
(175)
Other (income) expenses(2)
(12)
30
(26)
59
Remeasurement of exchangeable and class B shares
(257)
(108)
(516)
168
Adjusted EBITDA attributable to non-controlling interests(3)
(208)
(182)
(642)
(547)
Adjusted EBITDA
$
182
$
149
$
521
$
438
1.Gains on disposition of subsidiaries are presented net of gains/losses relating to foreign currency translation reclassified from accumulated comprehensive income to other income (expense) on the Consolidated Statement of Operating Results.
2.Other (income) expenses corresponds to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Other (income) expenses excluded from Adjusted EBITDA primarily include fair value remeasurement gains/losses and accretion expense on deferred consideration.
3.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting Adjusted EBITDA attributable to non-controlling interests, our company is able to remove the portion of Adjusted EBITDA earned at non-wholly owned subsidiaries that are not attributable to our company.
All reconciling amounts presented above are taken directly from the interim financial statements, and in the case of “Contribution from investments in associates” and “Attributable to non-controlling interests”, our company’s share of Adjusted EBITDA relating thereto are derived using the accounting policies consistent with those applied in our company’s interim financial statements. Adjusted EBITDA for these items is calculated on the same basis as consolidated entities, as disclosed above, and is calculated by applying the same ownership percentages used in calculating our company’s share of equity accounted income and the corresponding elimination of non-controlling interests in accordance with IAS 28, Investments in Associated and Joint Ventures and IFRS 10, Consolidated Financial Statements, respectively.
For the three and nine-month periods ended September 30, 2022, the differences between net income and Adjusted EBITDA are predominantly due to interest expense, income tax expense, remeasurement gains and losses, and Adjusted EBITDA attributable to non-controlling interests. Interest expense increased for the three and nine-month periods ended September 30, 2022 primarily due to incremental charges associated with debt issued to fund the deferred consideration paid in April 2022, and higher interest rates on our variable rate non-recourse borrowings at our Brazilian regulated gas transmission business. Income tax expense decreased as the impact of an increase in taxes due to organic growth was more than offset by tax benefits associated with foreign exchange translation losses on our U.S. denominated debt in Brazil during the three-month period ended September 30, 2022 and by a deferred tax recovery as a result of an internal restructuring in Brazil during the nine-month period ended September 30, 2022. Remeasurement gains primarily relate to the decrease in the market price of partnership units as well as the issuance of exchangeable shares during the past year. Adjusted EBITDA attributable to non-controlling interests increased for the three and nine-month periods ended September 30, 2022 as a result of organic growth. This increase was partially offset for the nine-month period ended September 30, 2022 by our company’s acquisition of an additional 3% interest in our Brazilian regulated gas transmission business in April 2021.
Q3 2022 Interim Report 35
The following table reconciles net income, the most directly comparable IFRS measure, to Adjusted Net Income, a non-IFRS measure:
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Net income
$
331
$
213
$
957
$
192
Add back or deduct the following:
Dividends paid on our exchangeable shares presented as interest expense
39
32
118
78
Interest expense and foreign currency translation adjustments on intercompany loans with the partnership
37
(18)
50
29
Remeasurement and other non-cash (gains) losses on exchangeable and class B shares
(257)
(89)
(516)
187
Consolidated Adjusted Net Income
150
138
609
486
Adjusted Net Income attributable to non-controlling interests(1)
(102)
(91)
(428)
(291)
Adjusted Net Income
$
48
$
47
$
181
$
195
1.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting Adjusted Net Income attributable to non-controlling interests, our company is able to remove the portion of Adjusted Net Income earned at non-wholly owned subsidiaries that are not attributable to our company.
All reconciling amounts presented above are taken directly from the interim financial statements, and in the case of “Attributable to non-controlling interests”, our company’s share of Adjusted Net Income relating thereto are derived using the accounting policies consistent with those applied in our company’s interim financial statements. Adjusted Net Income for these items is calculated on the same basis as consolidated entities, as disclosed above, and is calculated by applying the same ownership percentages used in calculating the corresponding elimination of non-controlling interests in accordance with IFRS 10, Consolidated Financial Statements.
For the three and nine-month periods ended September 30, 2022, the difference between net income and Adjusted Net Income is predominantly due to dividends paid on our exchangeable shares presented as interest expense, remeasurement gains and losses, and Adjusted Net Income attributable to non-controlling interests. For the three and nine-month periods ended September 30, 2022, dividends on our exchangeable shares increased primarily due to additional exchangeable shares issued during 2021. Remeasurement gains primarily relate to the decrease in the market price of partnership units as well as the issuance of exchangeable shares during the past year. Adjusted Net Income attributable to non-controlling interest increased for the three and nine-month periods ended September 30, 2022 primarily as a result of organic growth.
36 Brookfield Infrastructure Corporation
The following tables reconcile net income, an IFRS measure, on a disaggregated basis between our utilities operations and our corporate, general and administrative costs, to FFO and AFFO, non-IFRS measures:
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2022
US$ MILLIONS
Utilities
Corporate
Total
Net income
$
170
$
161
$
331
Add back or deduct the following:
Depreciation and amortization
51
—
51
Share of earnings from investments in associates
(8)
—
(8)
FFO contribution from investments in associates
19
—
19
Deferred income tax expense (recovery)
21
(3)
18
Mark-to-market on hedging items and foreign currency revaluation
1
43
44
Other income(1)
(7)
—
(7)
Remeasurement of exchangeable class B shares
—
(257)
(257)
Dividends classified as interest expense and interest expense on intercompany loans
—
39
39
FFO attributable to non-controlling interests(2)
(111)
—
(111)
FFO
136
(17)
119
Maintenance capital expenditures
(7)
—
(7)
AFFO
$
129
$
(17)
$
112
1.Other (income) expenses correspond to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Other (income) expenses excluded from FFO primarily include fair value remeasurement gains/losses.
2.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting FFO attributable to non-controlling interests, our company is able to remove the portion of FFO earned at non-wholly owned subsidiaries that are not attributable to our company.
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2021
US$ MILLIONS
Utilities
Corporate
Total
Net income
$
149
$
64
$
213
Add back or deduct the following:
Depreciation and amortization
65
—
65
Deferred income tax expense
17
—
17
Mark-to-market on hedging items and foreign currency revaluation
1
(24)
(23)
Other expenses(1)
14
18
32
Remeasurement of exchangeable class B shares
—
(108)
(108)
Dividends classified as interest expense and interest expense on intercompany loans
—
38
38
FFO attributable to non-controlling interests(2)
(122)
—
(122)
FFO
124
(12)
112
Maintenance capital expenditures
(5)
—
(5)
AFFO
$
119
$
(12)
$
107
1.Other (income) expenses correspond to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Other (income) expenses excluded from FFO primarily include fair value remeasurement gains/losses and accretion expense on deferred consideration.
2.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting FFO attributable to non-controlling interests, our company is able to remove the portion of FFO earned at non-wholly owned subsidiaries that are not attributable to our company.
Q3 2022 Interim Report 37
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2022
US$ MILLIONS
Utilities
Corporate
Total
Net income
$
669
$
288
$
957
Add back or deduct the following:
Depreciation and amortization
159
—
159
Share of earnings from investments in associates
(4)
—
(4)
FFO contribution from investments in associates
39
—
39
Deferred income tax recovery
(64)
—
(64)
Mark-to-market on hedging items and foreign currency revaluation
(93)
55
(38)
Other expenses(1)
24
—
24
Remeasurement of exchangeable class B shares
—
(516)
(516)
Dividends classified as interest expense and interest expense on intercompany loans
—
119
119
FFO attributable to non-controlling interests(2)
(339)
—
(339)
FFO
391
(54)
337
Maintenance capital expenditures
(23)
—
(23)
AFFO
$
368
$
(54)
$
314
1.Other (income) expenses correspond to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Other (income) expenses excluded from FFO primarily include fair value remeasurement gains/losses and accretion expense on deferred consideration.
2.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting FFO attributable to non-controlling interests, our company is able to remove the portion of FFO earned at non-wholly owned subsidiaries that are not attributable to our company.
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2021
US$ MILLIONS
Utilities
Corporate
Total
Net income (loss)
$
517
$
(325)
$
192
Add back or deduct the following:
Depreciation and amortization
210
—
210
Deferred income tax expense
157
—
157
Mark-to-market on hedging items and foreign currency revaluation
5
(3)
2
Gains on disposition of subsidiaries(1)
(175)
—
(175)
Other expenses(2)
45
18
63
Remeasurement of exchangeable class B shares
—
168
168
Dividends classified as interest expense and interest expense on intercompany loans
—
110
110
FFO attributable to non-controlling interests(3)
(393)
—
(393)
FFO
366
(32)
334
Maintenance capital expenditures
(14)
—
(14)
AFFO
$
352
$
(32)
$
320
1.Gains on disposition of subsidiaries are presented net of gains/losses relating to foreign currency translation reclassified from accumulated comprehensive income to other income (expense) on the Consolidated Statement of Operating Results.
2.Other (income) expenses correspond to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Other (income) expenses excluded from FFO primarily include fair value remeasurement gains/losses and accretion expense on deferred consideration.
3.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting FFO attributable to non-controlling interests, our company is able to remove the portion of FFO earned at non-wholly owned subsidiaries that are not attributable to our company.
38 Brookfield Infrastructure Corporation
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2022
US$ MILLIONS
Utilities
Corporate
Total
Net income
$
170
$
161
$
331
Add back or deduct the following:
Depreciation and amortization
51
—
51
Interest expense
108
39
147
Share of earnings from investments in associates
(8)
—
(8)
Adjusted EBITDA contribution from investments in associates
23
—
23
Income tax expense (recovery)
74
(3)
71
Mark-to-market on hedging items and foreign currency revaluation
1
43
44
Other income(1)
(12)
—
(12)
Remeasurement of exchangeable and class B shares
—
(257)
(257)
Adjusted EBITDA attributable to non-controlling interests(2)
(208)
—
(208)
Adjusted EBITDA
$
199
$
(17)
$
182
1.Other (income) expenses corresponds to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Other (income) expenses excluded from Adjusted EBITDA primarily include fair value remeasurement gains/losses..
2.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting Adjusted EBITDA attributable to non-controlling interests, our company is able to remove the portion of Adjusted EBITDA earned at non-wholly owned subsidiaries that are not attributable to our company.
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2021
US$ MILLIONS
Utilities
Corporate
Total
Net income
$
149
$
64
$
213
Add back or deduct the following:
Depreciation and amortization
65
—
65
Interest expense
39
38
77
Income tax expense
77
—
77
Mark-to-market on hedging items and foreign currency revaluation
1
(24)
(23)
Other expenses(1)
12
18
30
Remeasurement of exchangeable and class B shares
—
(108)
(108)
Adjusted EBITDA attributable to non-controlling interests(2)
(182)
—
(182)
Adjusted EBITDA
$
161
$
(12)
$
149
1.Other (income) expenses correspond to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Other (income) expenses excluded from Adjusted EBITDA primarily include fair value remeasurement gains/losses and accretion expense on deferred consideration.
2.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting Adjusted EBITDA attributable to non-controlling interests, our company is able to remove the portion of Adjusted EBITDA earned at non-wholly owned subsidiaries that are not attributable to our company.
Q3 2022 Interim Report 39
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2022
US$ MILLIONS
Utilities
Corporate
Total
Net income
$
669
$
288
$
957
Add back or deduct the following:
Depreciation and amortization
159
—
159
Interest expense
273
119
392
Share of earnings from investments in associates
(4)
—
(4)
Adjusted EBITDA contribution from investments in associates
50
—
50
Income tax expense
189
—
189
Mark-to-market on hedging items and foreign currency revaluation
(93)
55
(38)
Other income(1)
(26)
—
(26)
Remeasurement of exchangeable and class B shares
—
(516)
(516)
Adjusted EBITDA attributable to non-controlling interests(2)
(642)
—
(642)
Adjusted EBITDA
$
575
$
(54)
$
521
1.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting Adjusted EBITDA attributable to non-controlling interests, our company is able to remove the portion of Adjusted EBITDA earned at non-wholly owned subsidiaries that are not attributable to our company.
2.Other (income) expenses correspond to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Other (income) expenses excluded from Adjusted EBITDA primarily include fair value remeasurement gains/losses and accretion expense on deferred consideration.
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2021
US$ MILLIONS
Utilities
Corporate
Total
Net income (loss)
$
517
$
(325)
$
192
Add back or deduct the following:
Depreciation and amortization
210
—
210
Interest expense
98
110
208
Income tax expense
321
—
321
Mark-to-market on hedging items and foreign currency revaluation
5
(3)
2
Gains on disposition of subsidiaries(1)
(175)
—
(175)
Other expenses(2)
41
18
59
Remeasurement of exchangeable and class B shares
—
168
168
Adjusted EBITDA attributable to non-controlling interests(3)
(547)
—
(547)
Adjusted EBITDA
$
470
$
(32)
$
438
1.Gains on disposition of subsidiaries are presented net of gains/losses relating to foreign currency translation reclassified from accumulated comprehensive income to other income (expense) on the Consolidated Statement of Operating Results.
2.Other (income) expenses correspond to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating items necessary for business operations. Other (income) expenses excluded from Adjusted EBITDA primarily include fair value remeasurement gains/losses and accretion expense on deferred consideration
3.Amounts attributable to non-controlling interests are calculated based on the economic ownership interests held by non-controlling interests in consolidated subsidiaries. By adjusting Adjusted EBITDA attributable to non-controlling interests, our company is able to remove the portion of Adjusted EBITDA earned at non-wholly owned subsidiaries that are not attributable to our company.
40 Brookfield Infrastructure Corporation
LIQUIDITY AND CAPITAL RESOURCES
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 our distributions to shareholders. Our principal sources of liquidity are cash flows from our operations, capital recycling, access to public and private capital markets, access to the partnership’s undrawn credit facility and equity commitment and group wide liquidity. We structure the ownership of our assets to enhance our ability to monetize them to provide additional liquidity. In certain instances, subsidiaries may be subject to limitations on their ability to declare and pay dividends to our company. However, no significant limitations existed at September 30, 2022 and 2021.
As of September 30, 2022, we believe that our company’s liquidity is sufficient to meet its present requirements. Our company’s liquidity consisted of the following:
As of
US$ MILLIONS
September 30, 2022
December 31, 2021
Cash
$
82
$
165
Credit facilities
209
173
Company liquidity
$
291
$
338
Our company assesses liquidity on a group-wide basis, consistent with the partnership, because shareholders have exposure to a broader base of infrastructure investments by virtue of the exchange feature of our company’s exchangeable shares. As at September 30, 2022, our group’s total liquidity was $3,803 million (December 31, 2021: $5,380 million), which is sufficient to meet its present requirements.
We finance our assets principally at the operating company level with debt that generally has long-term maturities, few restrictive covenants and no recourse to either our company or our other operations.
On a consolidated basis as of September 30, 2022, scheduled principal repayments over the next five years are as follows:
US$ MILLIONS
Average Term (years)
2022
2023
2024
2025
2026
Beyond
Total
Non-recourse borrowing
6
$
—
$
1,033
$
79
$
348
$
320
$
2,500
$
4,280
As of September 30, 2022, our company’s share of scheduled principal repayments over the next five years are as follows:
US$ MILLIONS
Average Term (years)
2022
2023
2024
2025
2026
Beyond
Total
Utilities
7
$
3
$
479
$
99
$
239
$
218
$
1,818
$
2,856
Total non-recourse borrowings(1)
7
$
3
$
479
$
99
$
239
$
218
$
1,818
$
2,856
Company’s share of cash retained in businesses
Utilities
$
82
Total company’s share of cash retained
$
82
Net debt
Utilities
$
2,774
Total net debt
$
2,774
Percentage of total non-recourse borrowings
—
%
17
%
3
%
8
%
8
%
64
%
100
%
1.Represents non-recourse debt to our company as the holders have recourse only to the underlying operations.
We define “debt attributable to our company”, which is a non-IFRS measure, as our company’s share of borrowing obligations relating to our investments in various portfolio businesses. We define “net debt”, which is a non-IFRS measure, as debt attributable to our company, net of our company’s share of cash and cash equivalents. Our company’s share of cash and cash equivalents is calculated as cash and cash equivalents as reported under IFRS less the amounts attributable to non-controlling interests.
Q3 2022 Interim Report 41
Debt attributable to our company and net debt are not, and are not intended to be, presented in accordance with IFRS. We believe our presentation, when read in conjunction with our company’s reported results under IFRS, including consolidated debt, provides a more meaningful assessment of how our operations are performing and capital is being managed. The presentation of debt attributable to our company and net debt has limitations as an analytical tool, including the following:
•Debt attributable to our company and net debt amounts do not represent our consolidated obligation for debt underlying a consolidated investment. If an individual project does not generate sufficient cash flows to service the entire amount of its debt payments, our company may determine, in our discretion, to pay the shortfall through an equity injection to avoid defaulting on the obligation. Such a shortfall may not be apparent from or may not equal the difference between aggregate proportionate Adjusted EBITDA for all of our portfolio investments and aggregate debt attributable to our company for all of our portfolio investments; and
•Other companies may calculate debt attributable to the company and net debt differently than we do and as a result, these measures may not be comparable to similar measures presented by other issuers.
Debt attributable to our company and net debt are presented to assist investors in understanding the capital structure of our underlying investments that are consolidated in our financial statements, but are not wholly-owned. When used in conjunction with Adjusted EBITDA, both measures are expected to provide useful information as to how our company has financed its businesses at the asset-level and provide a view into our return on capital that we invest at a given degree of leverage. The only differences between consolidated debt presented under IFRS and debt attributable to our company are the adjustments to remove the share of debt of consolidated investments not attributable to our company and the impact of deferred financing costs. Management utilizes debt attributable to our company in understanding the capital structure of our underlying investments that are consolidated in our financial statements, but are not wholly-owned.
Debt attributable to our company can be reconciled to consolidated debt as follows:
As of
US$ MILLIONS
September 30, 2022
December 31, 2021
Consolidated debt
$
4,265
$
3,556
Add: company’s share of debt of investments in associates
522
—
Less: borrowings attributable to non-controlling interest
(1,946)
(1,314)
Deferred financing costs
15
7
Debt attributable to our company
$
2,856
$
2,249
As discussed in the notes to our interim financial statements for the three-month period ended September 30, 2022, our company entered into two credit agreements with Brookfield Infrastructure, one as borrower and one as lender, each providing for a ten-year revolving $1 billion credit facility for purposes of providing our company and Brookfield Infrastructure with access to debt financing on an as-needed basis and to maximize our flexibility and facilitate the movement of cash within our group. We intend to use the liquidity provided by the credit facilities for working capital purposes and to fund growth capital investments and acquisitions. The determination of which of these sources of funding our company will access in any particular situation will be a matter of optimizing needs and opportunities at that time.
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 by our company. 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
42 Brookfield Infrastructure Corporation
Most of the foreign exchange exposure of our group is hedged directly by the partnership and therefore, as of September 30, 2022, our company has $nil (December 31, 2021: $nil) corporate foreign exchange contracts in place to hedge against foreign currency risk.
The following table presents our exposure to foreign currencies as of September 30, 2022:
US$ MILLIONS
Equity Investment - US$
GBP
$
1,347
BRL
462
AUD
410
$
2,219
For additional information, see Note 5, Fair Value of Financial Instruments in our unaudited interim condensed and consolidated financial statements.
CAPITAL REINVESTMENT
From a treasury management perspective, our company manages its cash reserves with a view to minimizing foreign exchange and administrative costs, as well as enhancing our ability to secure asset level debt financing. While capital is primarily raised at the corporate level to fund the equity component of organic growth capital expenditures, actual funding of projects may be executed by injecting cash into subsidiaries or utilizing operating cash flow generated and retained by our company. Importantly, the physical movement of cash has no relevance on our company’s ability to fund capital expenditures or make distributions.
CAPITAL EXPENDITURES
Due to the capital-intensive nature of the asset base of our company, ongoing capital investment is required for additions and enhancements, life-cycle maintenance and repair of plant and equipment related to our operations. Our company reviews all capital expenditures and classifies them in one of the two following categories:
i)Growth capital expenditures: capital outlays underpinned by incremental revenues that will enhance our company’s returns. These projects are eligible for inclusion in the rate base of our utilities businesses;
ii)Maintenance capital expenditures: required capital outlays to maintain the current operating state and reliability of the system while ensuring regulatory and safety requirements are upheld
We manage separate review and approval processes for each of the two categories of capital expenditures. Growth capital expenditures are underwritten in isolation and must meet our company’s target after-tax equity return threshold of 12-15%. Projects that meet these return targets are presented to the Capital Expenditure Committee which comprises senior personnel of the General Partner of the partnership. The committee reviews proposed project plans considering the target returns and funding plans, in addition to analyzing the various execution risks associated with these projects. Once a project receives approval from the Capital Expenditure Committee, it is generally added to the backlog.
Maintenance capital expenditures follow a different, though equally robust process, as failure to make necessary investment to maintain our operations could impair the ability of our company to serve our customer base or continue existing operations. Firstly, the operations teams involved with a particular business performs a detailed review of all planned and proposed maintenance capital expenditures during the annual budgeting process. These plans are reviewed in the context of the businesses’ maintenance capital approach that is agreed upon with the business at the time of acquisition and take into account drivers of performance that include public and worker health and safety, environmental and regulatory compliance, system reliability and integrity. Maintenance capital projects that receive approval at the asset level are then presented to our company’s corporate asset management teams that are responsible for overseeing our company’s operations, and have ample experience in managing utilities assets. Through an iterative process with the companies’ senior operating executives, the plan is refined through a comprehensive review including prioritization of non-discretionary projects and comparisons to industry benchmarks. Once agreed, maintenance capital expenditure plans are approved and form part of the annual and five-year business plans that are presented to the partnership’s senior executive team. Once approved, these maintenance plans are executed in the following year and performance relative to these plans is closely monitored by both the operations and asset management teams.
Q3 2022 Interim Report 43
In addition to the various levels of internal reviews, our company will engage a reputable, globally recognized engineering services firm annually to perform an independent review of its overall approach to maintenance capital expenditures and detailed capital program. Each year the engineering services firm will review a portion of the portfolio, covering all assets on a three-year rotating basis. For each asset under review in a given year, the engineering services firm will review the historical and forecasted spend against industry standards, regulatory requirements or other benchmarking data, and determine the reasonableness of the maintenance capex program based on the nature of the business and the age and condition of the assets. We have also engaged an accounting firm to review the findings of the report provided by the engineering services firm and to assess the control activities related to our process for compiling the annual sustaining maintenance capital expenditure ranges. The results from the engagements confirm that our stated ranges of annual sustaining maintenance capital expenditures are reasonable and in-line with industry standard for assets of a similar nature.
REVIEW OF CONSOLIDATED STATEMENTS OF CASH FLOWS
The following table summarizes the consolidated statements of cash flows:
For the three-month period ended September 30
For the nine-month period ended September 30
US$ MILLIONS
2022
2021
2022
2021
Cash from operating activities
$
214
$
260
$
569
$
619
Cash (used by) from investing activities
(122)
(109)
(901)
436
Cash (used by) from financing activities
(326)
(92)
71
(830)
Three-month period ended September 30, 2022 and 2021
Cash from operating activities
Cash from operating activities totaled $214 million during the three-month period ended September 30, 2022, a decrease of $46 million compared to the three-month period ended September 30, 2021. Current year operating cash flows benefited from inflation-indexation and capital commissioned into rate base. These benefits were more than offset by an increase in dividends paid on our exchangeable shares, which are presented as interest expense, an increase in interest paid on non-recourse borrowings and management fees.
Cash used by investing activities
Cash used by investing activities was $122 million during the three-month period ended September 30, 2022, compared to $109 million in 2021. The increase in cash used by investing activities primarily relate to additional investments in long-lived assets at our U.K. regulated distribution business.
Cash used by financing activities
Cash used by financing activities was $326 million during the three-month period ended September 30, 2022, compared to $92 million in 2021. The increase in cash used by financing activities was primarily due to higher distributions paid to non-controlling interests and repayments on our deposit payable to the partnership.
44 Brookfield Infrastructure Corporation
SHARE CAPITAL
Our company’s equity interests include exchangeable shares held by the public shareholders and the class B and class C shares held by the partnership. Dividends on each of our exchangeable shares are expected to be declared and paid at the same time and in the same amount per share as distributions on each unit. Ownership of class C shares will entitle holders to receive dividends as and when declared by our board.
Our company’s capital structure is comprised of the following shares:
As of
UNITS
September 30, 2022
December 31, 2021
Exchangeable shares
110,513,085
110,157,540
Class B shares
2
2
Class C shares
2,103,677
2,103,677
Our company’s share capital is comprised of exchangeable shares, class B shares and class C shares. In August 2021, the partnership acquired a controlling interest in IPL for consideration comprised of cash, exchangeable shares and class B exchangeable limited partnership units (“BIPC exchangeable LP units”) of Brookfield Infrastructure Corporation Exchange Limited Partnership (“BIPC Exchange LP”). BIPC Exchange LP is a subsidiary of the partnership and holders of BIPC exchangeable LP units have the right to require the partnership to purchase BIPC exchangeable LP units and deliver one exchangeable share for each BIPC exchangeable LP unit purchased. During the nine-month period ended September 30, 2022, our company issued 372,622 exchangeable shares in connection with exchange requests from BIPC Exchange LP unitholders.
Exchangeable shares are exchangeable at the option of the holder at any time at a price equal to the market price of a unit. Our company has the option to satisfy the exchange either by delivering a unit or the cash equivalent of a unit. Our company intends to settle any exchange requests with units. During the nine-month period ended September 30, 2022, our shareholders exchanged 17,077 exchangeable shares for an equal number of partnership units. Class B shares and class C shares are redeemable for cash in an amount equal to the market price of a unit. There have been no redemptions of class B shares or class C shares to date. Due to the exchange feature of the exchangeable shares and the cash redemption feature of the class B and class C shares, the exchangeable shares, the class B share and class C shares are classified as financial liabilities. However, class C shares, the most subordinated class of all common shares, meet certain qualifying criteria and are presented as equity instruments given the narrow scope presentation exceptions existing in IAS 32.
On June 10, 2022, Brookfield Infrastructure completed a three-for-two stock split of partnership units, BIPC exchangeable LP units, exchangeable shares, class B shares and class C shares, by way of a subdivision whereby unitholders/shareholders received an additional one-half of a unit/share for each unit/share held. All historical units/shares and per unit/share disclosures have been adjusted to effect for the change in units/shares due to the stock split.
During the three-month period ended September 30, 2022, our company declared and paid dividends on our exchangeable shares at a rate of $0.36 per share resulting in total dividends paid of $39 million. Dividends paid on our exchangeable shares are presented as interest expense in our interim financial statements. No dividends were declared on our class B shares or class C shares during the nine-month period ended September 30, 2022.
Q3 2022 Interim Report 45
PRICE RANGE AND TRADING VOLUME OF LISTED UNITS
The units are listed and posted for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “BIP.UN”. The following table sets forth the price ranges (after accounting for the effect of special distribution) and trading volumes of the units as reported by the TSX for the periods indicated, in Canadian dollars:
Units
High (C$)
Low (C$)
Volume
2022
January 1, 2022 - March 31, 2022
55.19
49.53
27,841,548
April 1, 2022 - June 30, 2022
56.64
47.19
24,889,646
July 1, 2022 - September 30, 2022
56.13
48.21
20,945,927
2021
January 1, 2021 - March 31, 2021
46.31
41.43
30,344,436
April 1, 2021 - June 30, 2021
46.21
42.57
21,809,721
July 1, 2021 - September 30, 2021
48.99
44.84
18,404,493
October 1, 2021 - December 31, 2021
51.33
46.55
23,229,838
2020
January 1, 2020 - March 31, 2020
45.04
23.54
59,378,507
April 1, 2020 - June 30, 2020
39.71
32.71
46,626,963
July 1, 2020 - September 30, 2020
42.63
35.83
30,962,434
October 1, 2020 - December 31, 2020
45.77
37.97
34,110,643
2019
January 1, 2019 - March 31, 2019
33.70
28.73
43,691,319
April 1, 2019 - June 30, 2019
34.61
33.16
33,753,675
July 1, 2019 - September 30, 2019
39.61
34.00
33,568,488
October 1, 2019 - December 31, 2019
42.35
38.20
29,859,589
46 Brookfield Infrastructure Corporation
The units are listed and posted for trading on the NYSE under the symbol “BIP”. The following table sets forth the price ranges and trading volumes of the units as reported by the NYSE for the periods indicated, in U.S. dollars:
Units
High ($)
Low ($)
Volume
2022
January 1, 2022 - March 31, 2022
44.15
38.83
28,118,859
April 1, 2022 - June 30, 2022
45.33
36.45
22,001,642
July 1, 2022 - September 30, 2022
43.27
35.70
22,244,550
2021
January 1, 2021 - March 31, 2021
36.19
32.68
30,614,490
April 1, 2021 - June 30, 2021
37.17
35.11
21,117,951
July 1, 2021 - September 30, 2021
38.65
35.93
21,350,172
October 1, 2021 - December 31, 2021
40.72
37.25
29,160,108
2020
January 1, 2020 - March 31, 2020
33.71
16.24
48,897,897
April 1, 2020 - June 30, 2020
29.73
22.93
49,977,920
July 1, 2020 - September 30, 2020
32.14
26.39
25,084,398
October 1, 2020 - December 31, 2020
35.06
28.55
25,134,360
2019
January 1, 2019 - March 31, 2019
25.09
20.95
29,599,968
April 1, 2019 - June 30, 2019
25.73
24.62
22,954,033
July 1, 2019 - September 30, 2019
29.72
25.87
34,083,005
October 1, 2019 - December 31, 2019
31.57
28.66
24,620,067
Q3 2022 Interim Report 47
TREND INFORMATION
We seek to increase the cash flows from our operations through acquisitions and organic growth opportunities as described below. In particular, we focus on consortiums and partnerships where Brookfield has sufficient influence or control to deploy our operations oriented approach and Brookfield has a strong track record of leading such transactions, which provides the opportunity to expand cash flows through acquisitions. Our beliefs as to the opportunities for our company to increase cash flows through acquisitions and organic growth are based on assumptions about our company and markets that management believes are reasonable in the circumstances. There can be no assurance as to growth in our cash flows, or capital deployed for acquisitions or organic growth. See “Cautionary Statement Regarding Forward-Looking Statements”.
We believe our global scale and best-in-class operating groups provide us with a unique competitive advantage as we are able to efficiently allocate capital around the world toward those sectors and geographies where we see the greatest returns. We actively recycle assets on our balance sheet as they mature and reinvest the proceeds into higher yielding investment strategies, further enhancing returns.
Capital recycling has been a critical component of our full-cycle investment strategy and is important to our company for the following reasons:
•Key value creation lever - most infrastructure assets reach a maturity point, where the pace of capital appreciation or same-store growth levels out. Capital appreciation is maximized in periods where there are operational improvements, increased capacity utilization and capital expansion. Absent these factors, we would generally consider these assets to have mature income streams. At this point we will look to sell them at attractive returns and redeploy the proceeds into new income streams that will earn our 12-15% target returns.
•Alternative source of capital - we sometimes issue equity to fund growth, however capital markets are not always available and thus capital recycling becomes an important alternative source of funding. We believe that capital recycling allows us to be more strategic and focus on selling bond-like businesses at a very low discount rate, while potentially increasing returns to shareholders by avoiding dilution on our high-growth businesses.
•Institutes capital discipline - to us, it is imperative that businesses are sold to maximize proceeds, not when cash is needed as selling under duress almost never optimizes value. While our approach may result in periods where we have substantial liquidity that results in a short-term drag on results, as long-term investors, we believe it is the best way to create value over the long run.
We are operating in a global economy that is experiencing strong growth and there is an exceptional need for capital to fund investment projects. We are utilizing our competitive strength of size, global footprint, operating capabilities and access to capital to execute on accretive projects. We believe there are opportunities to buy for value in both developed and emerging economies.
RELATED PARTY TRANSACTIONS
In the normal course of operations, our company entered into the transactions below with related parties. The ultimate parent of our company is Brookfield. Other related parties of our company represent Brookfield’s subsidiary and operating entities.
Since inception, our partnership has had a management agreement (the “Master Services Agreement”), with certain service providers (the “Service Providers”) which are wholly-owned subsidiaries of Brookfield.
Pursuant to the Master Services Agreement, on a quarterly basis, the partnership 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 combined market value of the partnership and our company. Our company reimburses the partnership for our proportionate share of the management fee. For purposes of calculating the base management fee, the market value of the partnership is equal to the aggregate value of all the outstanding units (assuming full conversion of Brookfield’s Redeemable Partnership Units in Brookfield Infrastructure into units), preferred units and securities of the other Service Recipients (as defined in the 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. The amount attributable to our company is based on weighted average units and shares outstanding, after retroactively adjusting for the special distribution.
The Base Management Fee attributable to our company was $16 million and $50 million for the three and nine-month periods ended September 30, 2022, respectively (2021: $11 million and $29 million, respectively) and has been recorded as part of general and administrative expenses in the interim financial statements.
Our company’s affiliates provide connection services in the normal course of operations on market terms to affiliates and associates of Brookfield Property Partners L.P. For the three and nine-month periods ended September 30, 2022, revenues of less than $1 million were generated (2021: less than $1 million) and $nil expenses were incurred (2021: $nil).
48 Brookfield Infrastructure Corporation
Our company is party to two credit agreements with Brookfield Infrastructure, one as borrower and one as lender, each providing for a ten-year revolving $1 billion credit facility for purposes of providing our company and Brookfield Infrastructure with access to debt financing on an as-needed basis and to maximize our flexibility and facilitate the movement of cash within our group. We intend to use the liquidity provided by the credit facilities for working capital purposes and to fund growth capital investments and acquisitions. The determination of which of these sources of funding our company will access in any particular situation will be a matter of optimizing needs and opportunities at that time.
The credit facilities are available in U.S. or Canadian dollars, and advances will be made by way of LIBOR, base rate, CDOR, or prime rate loans. Both operating facilities bear interest at the benchmark rate plus an applicable spread, in each case subject to adjustment from time to time as the parties may agree. In addition, each credit facility contemplates potential deposit arrangements pursuant to which the lender thereunder would, with the consent of a borrower, deposit funds on a demand basis to such borrower’s account at market interest rate. As of September 30, 2022, $nil (December 31, 2021: $nil) was drawn on the credit facilities under the credit agreements with Brookfield Infrastructure.
Brookfield Infrastructure provided our company an equity commitment in the amount of $1 billion. The equity commitment may be called by our company in exchange for the issuance of a number of class C shares or preferred shares, as the case may be, to Brookfield Infrastructure, corresponding to the amount of the equity commitment called divided (i) in the case of a subscription for class C shares, by the volume-weighted average of the trading price for one exchangeable share on the principal stock exchange on which our exchangeable shares are listed for the five (5) days immediately preceding the date of the call, and (ii) in the case of a subscription for preferred shares, $25.00. The equity commitment will be reduced permanently by the amount so called. As at September 30, 2022, $nil (December 31, 2021: $nil) was called on the equity commitment.
BIPC Holdings Inc., a wholly owned subsidiary of our company, fully and unconditionally guaranteed (i) any unsecured debt securities issued by Brookfield Infrastructure Finance ULC, Brookfield Infrastructure Finance LLC, Brookfield Infrastructure Finance Limited and Brookfield Infrastructure Finance Pty Ltd., which we refer to collectively as the “Co-Issuers”, in each case as to payment of principal, premium (if any) and interest when and as the same will become due and payable under or in respect of the trust indenture dated October 10, 2012 among the Co-Issuers and Computershare Trust Company of Canada under which such securities are issued, (ii) the senior preferred shares of BIP Investment Corporation (“BIPIC”), as to the payment of dividends when due, the payment of amounts due on redemption and the payment of amounts due on the liquidation, dissolution or winding up of BIPIC, (iii) certain of the partnership’s preferred units, as to payment of distributions when due, the payment of amounts due on redemption and the payment of amounts due on the liquidation, dissolution or winding up of the partnership, and (iv) the obligations of Brookfield Infrastructure under its bilateral credit facilities. These arrangements do not have or are not 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. In addition, BIPC Holdings Inc. guaranteed (i) subordinated debt securities issued by Brookfield Infrastructure Finance ULC or BIP Bermuda Holdings I Limited on a subordinated basis, as to payment of principal, premium (if any) and interest when and as the same will become due and payable under or in respect of the trust indenture under which such securities are issued, and (ii) the obligations of Brookfield Infrastructure Holdings (Canada) Inc. under its commercial paper program.
As at September 30, 2022, the balance outstanding on our deposit with Brookfield Infrastructure was $530 million (December 31, 2021: $1,093 million). The balance decreased from December 31, 2021 due to net drawdowns from Brookfield Infrastructure and the impact of foreign exchange. The deposit accrues interest at 0.2% per annum. As at September 30, 2022, the demand deposit payable to Brookfield Infrastructure was $26 million (December 31, 2021: $131 million) following settlements of $105 million during the period. The deposit payable accrues interest at 0.2% per annum. Interest incurred on the deposit payable to Brookfield Infrastructure during the three and nine-month periods ended September 30, 2022 was less than $1 million (2021: $6 million and $32 million, respectively).
As at September 30, 2022, our company had accounts payable of $8 million (December 31, 2021: $5 million) to subsidiaries of Brookfield Infrastructure and accounts receivable of $17 million (December 31, 2021: $20 million) from subsidiaries of Brookfield Infrastructure.
On September 23, 2022, our company sold a financial asset to the partnership for fair market value consideration of $66 million. Our company recognized a loss on disposal of $2 million in the unaudited interim condensed and consolidated statement of operating results.
Q3 2022 Interim Report 49
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.
BIPC Holdings Inc., a wholly owned subsidiary of our company, fully and unconditionally guaranteed (i) any unsecured debt securities issued by Brookfield Infrastructure Finance ULC, Brookfield Infrastructure Finance LLC, Brookfield Infrastructure Finance Limited and Brookfield Infrastructure Finance Pty Ltd., which we refer to collectively as the “Co-Issuers”, in each case as to payment of principal, premium (if any) and interest when and as the same will become due and payable under or in respect of the trust indenture dated October 10, 2012 among the Co-Issuers and Computershare Trust Company of Canada under which such securities are issued, (ii) the senior preferred shares of BIP Investment Corporation (“BIPIC”), as to the payment of dividends when due, the payment of amounts due on redemption and the payment of amounts due on the liquidation, dissolution or winding up of BIPIC, (iii) certain of the partnership’s preferred units, as to payment of distributions when due, the payment of amounts due on redemption and the payment of amounts due on the liquidation, dissolution or winding up of the partnership, and (iv) the obligations of Brookfield Infrastructure under its bilateral credit facilities. These arrangements do not have or are not 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. In addition, BIPC Holdings Inc. guaranteed (i) subordinated debt securities issued by Brookfield Infrastructure Finance ULC or BIP Bermuda Holdings I Limited on a subordinated basis, as to payment of principal, premium (if any) and interest when and as the same will become due and payable under or in respect of the trust indenture under which such securities are issued, and (ii) the obligations of Brookfield Infrastructure Holdings (Canada) Inc. under its commercial paper program.
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.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The table below outlines our company’s contractual obligations as at September 30, 2022:
Payments due by period
US$ MILLIONS
Less than 1 year
1-2 years
2-3 years
3-5 years
5+ years
Total contractual cash flows
Accounts payable and other liabilities
$
465
$
2
$
1
$
—
$
—
$
468
Non-recourse borrowings
1,033
79
348
588
2,232
4,280
Financial liabilities
—
—
—
—
25
25
Loans payable to Brookfield Infrastructure
26
—
—
—
—
26
Exchangeable and class B shares
3,967
—
—
—
—
3,967
Interest expense:
Non-recourse borrowings
104
67
64
117
345
697
In addition, pursuant to the Master Services Agreement, on a quarterly basis, the partnership pays a base management fee, referred to as the Base Management Fee, to the Service Provider equal to 0.3125% (1.25% annually) of the combined market value of the partnership and our company. For purposes of calculating the Base Management Fee, the market value of the partnership is equal to the aggregate value of all the outstanding units, plus all outstanding third party debt with recourse to a recipient of services under the Master Services Agreement, less all cash held by such entities. The Base Management Fee allocated to our company is estimated to be approximately $64 million per year based on the expense attributable to our company for the three-month period ended September 30, 2022.
An integral part of our group’s strategy is to participate with institutional investors in Brookfield-sponsored infrastructure funds that target acquisitions that suit our group’s profile. In the normal course of business, our group will make commitments to Brookfield-sponsored infrastructure funds to participate in these target acquisitions in the future, if and when identified.
50 Brookfield Infrastructure Corporation
Critical Accounting Estimates
The preparation of financial statements requires management to make significant 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.
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.
Significant judgments and estimates made by management and utilized in the normal course of preparing our company’s interim financial statements, which we consider to be critical, are outlined below.
i)Revaluation of property, plant and equipment
Property, plant and equipment is revalued on a regular basis. Our company’s property, plant, and equipment is measured at fair value on a recurring basis with an effective date of revaluation for all asset classes of December 31. Our company 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.
CONTROLS AND PROCEDURES
No changes were made in our internal control over financial reporting during the nine-month period ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This MD&A contains forward-looking information and forward-looking statements within the meaning of applicable securities laws, including the United States Securities Litigation Reform Act of 1995. We may make such statements in this report, in other filings with securities regulators in Canada and the United States 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 MD&A 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 share 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, 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 dividend levels, dividend growth and payout ratios, operating results and margins for our company 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 our company, contract prices and regulated rates for our operations, our expected future maintenance and capital expenditures, ability to deploy capital in accretive investments, impact on our company 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, likely sources of future opportunities in the markets in which we operate, financing plans for our operating businesses, foreign currency management activities and other statements with respect to our beliefs, outlooks, plans, expectations and intentions. Although we believe that our company’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 our company 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 the forward-looking statements contained herein include general economic conditions in the jurisdictions in which we operate and elsewhere which may impact the markets for our products or services, the ability to achieve growth within our businesses, our ability to achieve the milestones necessary to deliver the targeted returns, which is uncertain, some of which depends on access to capital and continuing favourable commodity prices, the impact of market conditions on our businesses, including as a result of the COVID-19 outbreak, the fact that success of our company is dependent on market demand for an infrastructure company, which is unknown, the availability of equity and debt financing for our company, the ability to effectively complete new acquisitions in the competitive infrastructure space (including potential acquisitions that remain subject to the satisfaction of conditions precedent, and the inability to reach final agreement with counterparties to transactions being currently pursued, given that there can be no assurance that any such transaction will be agreed to or completed) and to integrate acquisitions into existing operations, changes in technology which have the potential to disrupt the businesses and industries in which we invest, the market conditions of key commodities, the price, supply or demand for which can have a significant impact upon the financial and operating performance of our business, regulatory decisions affecting our regulated businesses, our ability to secure favourable contracts, weather events affecting our business, traffic volumes on our toll road businesses, pandemics or epidemics, and other risks and factors described in the documents filed by us with the securities regulators in Canada and the United States, including under “Risk Factors” in our most recent Annual Report on form 20-F and other risks and factors that are described therein. In addition, our future results may be impacted by risks associated with COVID-19, and the related global reduction in commerce and travel and substantial volatility in stock markets worldwide, which may result in a decrease of cash flows and impairment losses and/or revaluations on our investments and infrastructure assets, and cause us to be unable to achieve our expected returns.
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 our company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Except as required by law, our company 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.
