Note: All other schedules required by Section 2520.103-10
of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security
Act of 1974, as amended, have been omitted because they are not applicable.
Notes to Financial Statements
December 31, 2016 and 2015
|
1.
|
Description of the Plan
|
The
Spectra Energy Retirement Savings Plan (the Plan) is a defined contribution plan. Participants should refer to the Plan document
for more complete information.
Participation
and Purpose
The
Plan is sponsored by Spectra Energy Corp (Spectra Energy or the Company). Spectra Energy is now an indirectly wholly owned
subsidiary of Enbridge Inc. (Enbridge); see Note 9 for additional details. Spectra Energy and each of its affiliated
companies that are at least 80%-owned and that participate in the Plan are collectively referred to as “Participating
Companies.”
The
purpose of the Plan is to provide an opportunity for eligible employees to enhance their long-term financial security through
employee contributions, matching contributions from Participating Companies, and investments among certain investment funds, one
of which provides an investment interest in Spectra Energy common stock. The Plan is subject to the applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended (ERISA).
Generally,
employees of Participating Companies are eligible to enter and participate in the Plan if they (1) have attained the age
of 18, and (2) are paid on a Participating Company’s U.S. payroll system.
Contributions
Participants
may authorize payroll deductions from eligible earnings in the form of before-tax deferrals and/or after-tax contributions. Participants
may elect to contribute (subject to certain limitations) up to 75% of eligible earnings per pay period without regard to years
of service. Participants may also make a separate election to defer from 1% to 75% of any short-term incentive compensation or
“spot” bonuses (or other similar bonuses) in the form of before-tax deferrals and/or after-tax contributions. Various
provisions of the Internal Revenue Code of 1986, as amended (IRC) may limit the deferrals of some highly compensated employees.
The Plan is required to return contributions received during the Plan year in excess of IRC limits. All deferrals are exempt,
up to the allowed maximum, from federal and state income tax withholding in the year they are deferred, but are subject to payroll
taxes. Participant deferrals are intended to satisfy the requirements of Section 401(k) of the IRC. Participating Companies
contribute matching contributions for Plan participants in an amount equal to 100% of a participant’s before-tax/catch-up
contributions, up to 6% of a participant’s eligible pay per pay period, subject to certain additional Plan and IRC limitations.
Participant after-tax contributions and matching contributions are intended to satisfy the requirements of Section 401(m)
of the IRC.
Employees
who are eligible to make before-tax deferrals under the Plan and who have attained age 50 before the close of the Plan year shall
be eligible to make catch-up contributions, in accordance with and subject to certain limitations.
Rollover Contributions to the Plan
Rollover contributions represent amounts recorded
when participants elect to contribute amounts to their Plan accounts from other eligible, tax-qualified retirement plans or qualified
individual retirement accounts.
Participant Accounts
Individual accounts are maintained for each Plan
participant. Each participant’s account is credited with the participant’s contributions, employer contributions, and
Plan earnings, and charged with benefit payments and allocations of Plan losses. Allocations are based on participant earnings
or account balances. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s
vested account. The selection from available investment funds is the sole responsibility of each participant. Participants may
invest their Plan accounts in any or all of the investment funds offered in the Plan.
Vesting and Payment of Benefits
Participants are immediately 100% vested in their
Plan accounts. Participants may elect to receive certain distributions from their Plan accounts during continuation of employment.
The Plan provides for several different types of in-service withdrawals, including hardship and age 59½
withdrawals. A hardship distribution must comply with Section 401(k) of the IRC.
Upon termination of employment for any reason, participants
(or, if deceased, their beneficiaries) may request the distribution of the balance of their Plan accounts. Distributions are made
as soon as practicable after the occasion for the distribution, except that participants may elect that a distribution be delayed
until no later than April 1 of the calendar year following the calendar year in which they attain age 70½
(or, if they continued to work past age 70½, the April 1 following the calendar year in which their
company employment terminates), unless a participant’s account balance is $1 thousand or less (in which case, the participant
will automatically receive a complete distribution of the account balance as soon as feasible following such termination). A beneficiary
of a deceased participant may elect that a distribution be delayed for up to one year following the date of death.
Notes Receivable from Participants
Participants may borrow, with some limitations,
from their accounts a minimum of $1 thousand up to a maximum equal to the lesser of (1) $50 thousand minus the highest outstanding
loan balance during the 12-month period prior to the new loan, or (2) 50% of their account balances. The terms of the notes
that represent these loans range up to 58 months or up to 15 years for the purchase of a primary residence. The note is secured
by the balance in the participant’s Plan account and the interest rate will be a reasonable fixed rate that is determined
in accordance with the procedures established by the Plan administrator, which considers all relevant factors, including current
rates of interest charged by commercial banks for similar notes. Principal and interest is paid ratably through payroll deductions.
Note receipts will be reinvested based on the participant’s investment election for employee contributions at the time of
repayment. A participant may have no more than two outstanding loans at any time.
These loans shall be available to each eligible
employee who is actively employed by a Participating Company, and whose account balance totals at least $2 thousand; provided,
however, that if the eligible employee had a prior loan under the Plan that has been paid in full, the final payment on such loan
was made at least seven days prior to the effective date of the new loan.
|
2.
|
Summary of Significant Accounting Policies
|
Basis of Accounting
The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).
Use of Estimates
The preparation of financial statements in conformity
with US GAAP requires the Plan’s management to make estimates and assumptions that affect the reported amounts of net
assets available for benefits and changes therein. Actual results could differ from those estimates.
Risks and Uncertainties
The Plan utilizes various investment instruments.
Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility.
Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of
investment securities will occur in the near term and such changes could materially affect the amounts reported in the financial
statements.
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair
value. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date.
Purchases and sales of securities are recorded on
a trade-date basis. Interest income is recorded on the accrual basis and dividends are recorded to participant accounts on the
dividend payment date.
Management fees and operating expenses charged to
the Plan for investments in the common trust funds and registered investment companies are either paid from the fund balance or
deducted from income earned on a daily basis, and are not separately reflected. Consequently, management fees and operating expenses
are reflected as a reduction of investment return for these investments.
Administrative Expenses
Administrative expenses of the Plan are paid by
the Plan or the Company as provided in the Plan document.
Former employees who have account balances remaining
under the Plan at any point during the calendar year (and alternate payees under any qualified domestic relations order) are charged
with a portion of the Plan’s record keeping expenses; the fee is $79 per year, which is generally deducted on a quarterly
basis at $19.75 per quarter. However, for the year in which such a participant or alternate payee takes a final distribution from
the Plan, $79 minus the quarterly amounts that have already been deducted for the year from such individual’s account (or
paid by the Company if, for example, the terminated participant was an active employee for a full quarter) is deducted at the time
the distribution is taken. Active employees and participants who terminated due to disability are not charged with such expenses.
An administrative fee is also charged to the account
of a participant who takes a loan. Administrative expenses other than these record keeping and loan related expenses are generally
paid by the Company.
Notes Receivable from Participants
Notes receivable from participants represent participant
loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable
from participants is recorded when earned. No allowance for credit losses has been recorded as of December 31, 2016 or 2015.
If a participant ceases to make loan repayments and the Plan administrator deems the participant loan to be a distribution, the
participant loan balance is reduced and a benefit payment is recorded.
Payment of Benefits
Benefit payments to participants are recorded upon
distribution.
|
3.
|
Related Party Transactions
|
Participants typically receive distributions in
cash; however, they may elect to receive the amount that is invested in the Spectra Energy Common Stock Fund as of the date of
distribution in whole shares of Spectra Energy common stock and cash for any fractional shares. In-kind distributions qualify as
related party transactions. For the year ended December 31, 2016, in-kind distributions were $9.6 million for the Spectra
Energy Common Stock Fund.
|
4.
|
Exempt Party-in-Interest Transactions
|
Fidelity Management Trust Company (Fidelity) is
the trustee as defined by the Plan and, therefore, transactions with Fidelity and the funds they manage qualify as party-in-interest
transactions. Investment management fees and operating fees paid by the Plan were included as a reduction of the return earned
on each fund. Administrative fees paid by the Plan were $68 thousand for the year ended December 31, 2016.
Included in the Plan’s investments are shares
of common stock of Spectra Energy, the Plan’s sponsor. Transactions in shares of Spectra Energy common stock qualify as party-in-interest
transactions. At December 31, 2016 and 2015, the Plan held 7.7 million and 9.1 million shares, respectively, which equates
to 15.0 million and 17.4 million equivalent units, respectively, under the Plan’s unitized recordkeeping approach, of Spectra
Energy common stock with a cost basis of $216.0 million and $239.3 million, respectively. During the year ended December 31,
2016, the Plan recorded related dividend income of $10.2 million. Additionally, the Plan maintains participant loans (see Note
1).
Although it has not expressed any intention to do
so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to
the provisions set forth in ERISA. In the event that the Plan is terminated, participants’ accounts will be distributed as
permitted by law.
|
6.
|
Federal Income Tax Status
|
The Internal Revenue Service (IRS) has determined
and informed the Company by a letter dated July 30, 2015 that the Plan is qualified and the related trust is exempt from federal
income tax under the provisions of Section 501(a) of the IRC. The Plan is intended to be tax-qualified under Section 401(a)
of the IRC, and the Plan administrator and the Plan Sponsor’s legal counsel believe the Plan is being operated in compliance
with the applicable requirements of the IRC and that the Plan and the related trust continue to be tax exempt. Therefore, no provision
for income taxes has been included in the Plan’s financial statements.
US GAAP requires Plan management to evaluate
tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than
not would not be sustained upon examination by the IRS. There are no uncertain tax positions taken or expected to be taken that
would require recognition of a liability or disclosure in the financial statements. The Plan is not currently under audit by any
taxing jurisdictions. Plan management believes it is no longer subject to income tax examination for years prior to 2013.
|
7.
|
Fair Value Measurements
|
Assets are fair valued by maximizing the use of
observable inputs and minimizing the use of unobservable inputs. Fair value is the exchange price that would be received for an
asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement
date.
The three levels of the fair value hierarchy are
described as follows:
Level
1
Inputs
to the valuation methodology are quoted unadjusted prices for identical assets in active markets.
Level
2
Inputs
to the valuation methodology include quoted prices for similar assets in active markets, and inputs that are observable for the
asset, either directly or indirectly, for substantially the full term of the financial instrument.
Level
3
Inputs
to the valuation methodology are unobservable and significant to the fair value measurement. The Plan had no Level 3 assets at
December 31, 2016 or 2015.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant
to the fair value measurement.
Shares of the money market fund and registered investment
funds are valued at quoted market prices.
The Spectra Energy Common Stock fund is comprised
of common stock and a short-term cash component. The value of a unit reflects the combined market value of the underlying stock
and market value of the short-term cash position. The market value of the common stock portion of the fund is based on the closing
market price of the common stock on the New York Stock Exchange times the number of shares held in the fund. Investments in common
collective investment trust funds are stated at fair values, which have been determined based on the net asset value of the funds.
Net asset values are determined by the organization sponsoring such funds by dividing the fund’s net assets at fair value
by its units outstanding at each valuation date.
In accordance with ASU 2015-07, investments in the
Spectra Energy Common Stock Fund and common collective investment trusts have not been classified in the fair value hierarchy.
The fair value amounts presented in the following tables are intended to permit reconciliation of the fair value hierarchy to the
amounts presented on the Statement of Net Assets Available for Benefits.
Although
the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement
at the reporting date.
The tables below include the major categories for
equity securities on the basis of the nature and risk of the investments:
|
|
December 31, 2016
|
|
|
Level 1
|
|
Total
|
|
|
(in thousands)
|
Investments
|
|
|
|
|
|
|
|
|
Investments measured at fair value:
|
|
|
|
|
|
|
|
|
Money market fund
|
|
$
|
92,266
|
|
|
$
|
92,266
|
|
Registered investment funds
|
|
|
28,344
|
|
|
|
28,344
|
|
|
|
$
|
120,610
|
|
|
$
|
120,610
|
|
Investments measured at net asset value:
|
|
|
|
|
|
|
|
|
Common stock fund
|
|
|
|
|
|
|
322,259
|
|
Common collective trust funds
|
|
|
|
|
|
|
324,272
|
|
Total investments, at fair value
|
|
|
|
|
|
$
|
767,141
|
|
|
|
December 31, 2015
|
|
|
Level 1
|
|
Total
|
|
|
(in thousands)
|
Investments
|
|
|
|
|
|
|
|
|
Money market fund
|
|
$
|
58,980
|
|
|
$
|
58,980
|
|
Registered investment funds
|
|
|
27,992
|
|
|
|
27,992
|
|
|
|
$
|
86,972
|
|
|
$
|
86,972
|
|
Investments measured at net asset value:
|
|
|
|
|
|
|
|
|
Common stock fund
|
|
|
|
|
|
|
221,253
|
|
Common collective trust funds
|
|
|
|
|
|
|
287,028
|
|
Total investments, at fair value
|
|
|
|
|
|
$
|
595,253
|
|
The Plan’s investments for which fair values
are estimated using NAV per share are summarized in the following tables:
Investment
|
|
Fair Value
|
|
Unfunded
Commitment
|
|
Redemption
Frequency
|
|
Other
Redemption
Restrictions
|
|
Redemption
Notice
Period
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Spectra Energy Common Stock Fund (a)
|
|
$
|
322,259
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
Common collective trust funds:
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Fund (Prudential)
|
|
|
38,266
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
S&P 500 Index Fund (BlackRock)
|
|
|
63,637
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
International Index Fund (BlackRock)
|
|
|
2,671
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
U.S. Large Cap Value Equity Fund (Robeco)
|
|
|
36,913
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
U.S. Large Cap Growth Index Fund (BlackRock)
|
|
|
34,029
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
U.S. Large Cap Value Index Fund (BlackRock)
|
|
|
3,568
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
U.S. Small Cap Growth Fund (Voya)
|
|
|
5,325
|
|
None
|
|
Immediate
|
|
*
|
|
None
|
U.S. Small/Mid Cap Fund (Loomis Sayles)
|
|
|
25,707
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
U.S. Small/Mid Cap Index Fund (BlackRock)
|
|
|
5,362
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
Fixed Income Index Fund (BlackRock)
|
|
|
8,097
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
LifePath Funds (BlackRock)
|
|
|
100,697
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
Total common collective trust funds
|
|
$
|
324,272
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Spectra Energy Common Stock Fund (a)
|
|
$
|
221,253
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
Common collective trust funds:
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Fund (Prudential)
|
|
|
34,574
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
S&P 500 Index Fund (BlackRock)
|
|
|
57,518
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
International Index Fund (BlackRock)
|
|
|
2,005
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
U.S. Large Cap Value Equity Fund (Robeco)
|
|
|
33,618
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
U.S. Large Cap Growth Index Fund (BlackRock)
|
|
|
32,996
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
U.S. Large Cap Value Index Fund (BlackRock)
|
|
|
2,502
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
U.S. Small Cap Growth Fund (Voya)
|
|
|
4,996
|
|
None
|
|
Immediate
|
|
*
|
|
None
|
U.S. Small/Mid Cap Fund (Loomis Sayles)
|
|
|
24,932
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
U.S. Small/Mid Cap Index Fund (BlackRock)
|
|
|
3,581
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
Fixed Income Index Fund (BlackRock)
|
|
|
7,440
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
LifePath Funds (BlackRock)
|
|
|
82,866
|
|
None
|
|
Immediate
|
|
None
|
|
None
|
Total common collective trust funds
|
|
$
|
287,028
|
|
|
|
|
|
|
|
|
|
*
|
Subject to Fidelity Excessive Trading Policy (Policy).
Under the Policy, participants are limited to one round trip (exchange in and out both in excess of $1,000 within 30 days) transaction
in the fund within any rolling 90-day period, subject to an overall limit of four round-trip exchange transactions across all
funds covered by the Policy over a rolling 12-month period.
|
|
(a)
|
The fund’s objective
is to invest in Spectra Energy as an indirect owner of its common stock.
|
On February 27, 2017, pursuant to the Agreement
and Plan of Merger, dated as of September 5, 2016 (the Merger Agreement), among Spectra Energy, Enbridge, and Sand
Merger Sub, Inc. (Merger Sub), Merger Sub merged with and into Spectra Energy (the Merger), with Spectra Energy surviving the Merger
as a wholly owned subsidiary of Enbridge. Under the terms of the Merger Agreement, each share of Spectra Energy common stock
that was outstanding as of the time of the Merger, including shares held in the Spectra Energy Common Stock Fund investment option
under the Plan, was automatically converted into 0.984 Enbridge common shares.
Enbridge is now the issuer of the securities held
pursuant to the Plan. The Plan did not change as a result of the
Merger, except that as of the consummation of the Merger, the Spectra Energy Common Stock Fund was replaced by the Enbridge Stock
Fund, and shares of Spectra Energy common stock held in the Spectra Energy Common Stock Fund converted to Enbridge common shares
as described above.
The Plan’s management evaluated subsequent
events through June 21, 2017, the date the financial statements were issued, and concluded that
no other subsequent events have occurred that would require recognition or disclosure in the financial statements.