RNS Number:3989M
TransCanada Pipelines Ld
16 June 2003
---------------------------------------------------------------------
Media Inquiries: Glenn Herchak/Hejdi Feick (403) 920-7877
Analyst Inquiries: David Moneta/Debbie Persad (403) 920-7911
NewsRelease
Focus and Discipline Result in Strong TransCanada
First Quarter Performance
Board declares 158th consecutive dividend
CALGARY, Alberta - April 25, 2003 - (TSE: TRP) (NYSE: TRP)
First Quarter 2003 Financial Highlights
(All financial figures are in Canadian dollars unless noted otherwise)
* TransCanada PipeLines Limited's net income applicable to common shares for
the first quarter 2003 was $208 million or $0.43 per share compared to $187
million or $0.39 per share for the first quarter 2002. The approximate 11
per cent increase in first quarter 2003 net income is primarily due to
higher earnings from the Power business and reduced net expenses in the
Corporate segment, partially offset by lower earnings from the Transmission
segment.
* Funds generated from operations for the first quarter 2003 were $457
million compared to $455 million for the same period last year.
* TransCanada's Board of Directors today declared a quarterly dividend of
$0.27 per share for the quarter ended June 30, 2003 on the outstanding
common shares. This is the 158th consecutive quarterly dividend on
TransCanada's common shares and is payable on July 31, 2003 to shareholders
of record at the close of business on June 30, 2003. The Board also declared
regular dividends on TransCanada's preferred shares.
"Our strong financial performance this quarter continues to be a direct result
of our focus and discipline in implementing our key strategies," said Hal
Kvisle, TransCanada's chief executive officer. "We will continue to maintain and
utilize our strong financial position as a solid platform for growth and value
creation in our core businesses."
First Quarter 2003 Developments
In the first quarter, TransCanada completed its acquisition of a 31.6 per cent
interest in Bruce Power L.P. for approximately $376 million plus closing
adjustments. TransCanada also funded a one-third share ($75 million) of a $225
million accelerated deferred rent payment to Ontario Power Generation. Bruce
Power L.P. is a tenant under a lease on the Bruce nuclear power facility in
Ontario. The lease expires in 2018 with an option to extend the lease by up to
25 years.
"Our investment in Bruce Power L.P. is an excellent example of our focused and
disciplined approach to growth," said Mr. Kvisle. "Bruce is one of the largest
and most efficient power generation facilities in North America and located in
one of the largest power markets. Our Bruce investment is consistent with our
objective of building a balanced portfolio of low-cost power generation assets."
Mr. Kvisle said strong power prices and excellent operating performance
contributed significantly to solid first quarter results from Bruce Power L.P.
He also noted that in the first quarter since the acquisition in February 2003,
Bruce Power L.P. contributed $27 million after tax of equity income to
TransCanada while achieving an average selling price of $63 per megawatt hour.
In February, TransCanada, through its subsidiary NOVA Gas Transmission Ltd.
(NGTL) reached a one-year settlement regarding the 2003 revenue requirement for
TransCanada's Alberta System. The one-year settlement establishes NGTL's fixed
revenue requirement for 2003 ($1.277 billion for 2003 versus $1.347 billion in
2002.) TransCanada estimates this change will decrease net earnings on the
Alberta System by approximately $40 million after tax, as compared to 2002.
This settlement is currently before the Alberta Energy and Utilities Board for
approval together with the Alberta System 2003 Tariff Settlement, which includes
proposed modifications to rate design and an application for a new service.
"We believe negotiations leading to this settlement were significantly
influenced by the June 2002 National Energy Board (NEB) decision on our Canadian
Mainline Fair Return application," said Mr. Kvisle. "While there remain many
complex issues in the current regulatory environment, we are committed to
working collaboratively with our customers to try and resolve those issues and
move forward."
In March, TransCanada applied to the Federal Court of Appeal for leave to appeal
the NEB's RH-R-1-2002 Decision issued February 20, 2003. In this Decision, the
NEB dismissed TransCanada's September 2002 request for a Review and Variance of
the NEB's June 2002 RH-4-2001 Decision on the company's Fair Return application.
"We continue to be concerned with the effect of the NEB Decision on
TransCanada's ability to obtain a fair return on our investment in our Canadian
Mainline," said Mr. Kvisle.
Also in the first quarter, TransCanada's Board of Directors unanimously
recommended common shareholders vote in favour of a proposal to create a new
holding company -- TransCanada Corporation -- to become the parent of
TransCanada PipeLines Limited. The proposal will be voted on today at
TransCanada's Annual and Special Meeting of Shareholders. TransCanada will
announce the results of the vote after the Meeting.
"TransCanada is embarking on the rest of the year and the future with a strong
balance sheet, clear strategies and a capable and enthusiastic team," said Mr
Kvisle. "We look forward to maintaining our focus on our core strategies with an
emphasis on well-planned, well-executed growth that creates value for our
shareholders while preserving our financial strength."
Annual Meeting of Shareholders and Teleconference
TransCanada will hold its Annual and Special Meeting of Shareholders beginning
today at 10:30 a.m. (Mountain) / 12:30 p.m. (Eastern). The meeting will take
place at the Roundup Centre (13th Avenue and Third Street S.E.) in Calgary,
Alberta. A live audio Web cast of the meeting will be available on TransCanada's
Web site at www.transcanada.com beginning at 10:30 a.m. (Mountain) / 12:30 p.m.
(Eastern). The meeting Web cast will be archived and available for replay.
TransCanada will hold a teleconference today at 1:00 p.m. (Mountain) / 3:00 p.m.
(Eastern) to discuss the first quarter 2003 financial results and general
developments and issues concerning the company. Analysts, members of the media
and other interested parties wanting to participate in the call should dial
1-800-273-9672 or 416-695-5806 (Toronto area) at least 10 minutes prior to the
start of the call. No pass code is required. A replay of the teleconference will
be available two hours after the conclusion of the call until midnight, May 2,
2003, by dialing 1-800-408-3053 or
416-695-5800 (Toronto area) and entering passcode 1402789.
The conference will begin with a short address by members of TransCanada's
executive management, followed by a question and answer period for investment
analysts. A question and answer period for members of the media unable to attend
the Annual and Special Meeting of Shareholders will immediately follow. A live
audio Web cast of the teleconference will also be available on TransCanada's Web
site. The teleconference Web cast will be archived and available for replay.
About TransCanada
TransCanada is a leading North American energy company. We are focused on
natural gas transmission and power services with employees who are expert in
these businesses. Our network of approximately 38,000 kilometres of pipeline
transports the majority of western Canada's natural gas production to the
fastest growing markets in Canada and the United States. TransCanada has
interests in more than 4,000 megawatts of power - an equal amount of power can
meet the needs of about four million average households. Our common shares trade
under the symbol TRP on the Toronto and New York stock exchanges. Visit us on
the internet at www.transcanada.com for more information.
First Quarter 2003 Financial Highlights
(unaudited)
Operating Three months ended March 31
Results
(millions of 2003 2002
dollars)
Revenues 1,336 1,246
Net Income Applicable to Common Shares 208 187
Cash Flow
Funds generated form operation 457 455
Capital expenditures and acquisitions in 482 113
continuing operations
Three months ended March 31
Common Share 2003 2002
Statistics
Net Income Per Share - Basic and Diluted $0.43 $0.39
Dividend Per $0.27 $0.25
Share
Common Shares Outstanding (millions)
Average for the 480.1 477.0
period
End of period 480.5 477.5
-30-
--------------------------------------------------------------------------------
FIRST QUARTER 2003
Quarterly Report to Shareholders
Consolidated Results-at-a-Glance
Three months ended March 31 (unaudited)
(millions of dollars except per share amounts) 2003 2002
Net Income Applicable to Common Shares 208 187
Net Income Per Share - Basic and Diluted $0.43 $0.39
Management's Discussion and Analysis
The following discussion and analysis should be read in conjunction with the
accompanying unaudited consolidated financial statements of TransCanada
PipeLines Limited (TransCanada or the company) for the three months ended March
31, 2003 and the notes thereto.
Results of Operations
Consolidated
TransCanada's net income applicable to common shares for the three months ended
March 31, 2003 was $208 million or $0.43 per share compared to $187 million or
$0.39 per share for first quarter 2002. The increase of $21 million or $0.04 per
share in first quarter 2003 compared to first quarter 2002 was primarily due to
higher earnings from the Power business and reduced net expenses in the
Corporate segment, partially offset by lower earnings from the Transmission
segment. In first quarter 2003, the Power segment earnings included $27 million
related to TransCanada's earnings from its investment in Bruce Power L.P.
(Bruce) which was acquired by TransCanada in February 2003. The lower earnings
in the Transmission segment were primarily due to the decline in the Alberta
System's net earnings reflecting the one-year fixed 2003 revenue requirement
settlement reached between TransCanada and its stakeholders in February 2003.
Funds generated from operations of $457 million for the three months ended March
31, 2003 were consistent with the same period in the prior year.
Segment Results-at-a-Glance
Three months ended March 31 (unaudited)
(millions of dollars) 2003 2002
Transmission 158 163
Power 63 41
Corporate (13) (17)
Net Income Applicable to Common Shares 208 187
Transmission
The Transmission business generated net earnings of $158 million and $163
million for the three months ended March 31, 2003 and 2002, respectively.
Transmission Results-at-a-Glance
Three months ended March 31 (unaudited)
(millions of dollars) 2003 2002
Wholly-Owned Pipelines
Alberta System 42 50
Canadian Mainline 71 68
BC System 2 2
115 120
North American Pipeline Ventures
Great Lakes 17 22
TC PipeLines, LP 3 4
Iroquois 7 5
Portland 7 1
Foothills 4 5
Trans Quebec & Maritimes 2 2
CrossAlta 3 5
Northern Development (1) (1)
Other 1 -
43 43
Net earnings 158 163
Wholly-Owned Pipelines
The Alberta System's net earnings of $42 million in first quarter 2003 decreased
$8 million compared to $50 million in the same quarter of 2002. The decrease in
net earnings is primarily due to lower earnings as a result of the one-year 2003
revenue requirement settlement which includes a fixed revenue requirement
component of $1.277 billion compared to a fixed revenue requirement component of
$1.347 billion in 2002. The Alberta System's annual net earnings in 2003 are
expected to be lower by approximately $40 million after tax compared to annual
2002 net earnings of $214 million.
The Canadian Mainline's net earnings have increased $3 million for the three
months ended March 31, 2003 when compared to the corresponding period in 2002.
The increase in 2003 net earnings is mainly due to the National Energy Board's
decision on TransCanada's Fair Return application (Fair Return decision) which
included an increase in the deemed common equity ratio from 30 to 33 per cent,
effective January 1, 2001. The Fair Return decision was made in June 2002, and
was therefore not reflected in first quarter 2002 earnings. Earnings in first
quarter 2003 also reflect an increase in the approved rate of return on common
equity from 9.53 per cent in 2002 to 9.79 per cent in 2003, partially offset by
a lower average investment base. The NEB hearing which commenced February 26,
2003 to consider the Canadian Mainline 2003 Tolls and Tariff Application is
still in process.
Operating Statistics Alberta Canadian BC
Three months ended March 31 (unaudited) System* Mainline** System
2003 2002 2003 2002 2003 2002
Average investment base ($ millions) 4,966 5,088 8,692 8,974 238 200
Delivery volumes (Bcf)
Total 1,061 1,067 805 697 61 105
Average per day 11.8 11.9 8.9 7.7 0.7 1.2
*Field receipt volumes for the Alberta System for the three months ended March 31, 2003 were 956
Bcf (2002 - 997 Bcf); average per day were 10.6 Bcf (2002 - 11.1 Bcf).
**Canadian Mainline deliveries originating at the Alberta border and in Saskatchewan for the three months ended
March 31, 2003 were 592 Bcf (2002 - 552 Bcf); average per day were 6.6 Bcf (2002 - 6.1
Bcf).
North American Pipeline Ventures
TransCanada's proportionate share of net earnings of $43 million from its other
Transmission businesses for the three months ended March 31, 2003 was consistent
with the same period in 2002.
Net earnings for the three months ended March 31, 2002 included TransCanada's $7
million share of a favourable ruling for Great Lakes related to Minnesota use
tax paid in prior years. Excluding the impact of the Great Lakes favourable
ruling in 2002, net earnings for the three months ended March 31, 2003 increased
mainly due to higher earnings from Portland which included a depreciation
adjustment related to 2002 and higher tolls in first quarter 2003 compared to
first quarter 2002, both as a result of Portland's rate settlement in early
2003.
Power
Power Results-at-a-Glance
Three months ended March 31 (unaudited)
(millions of dollars) 2003 2002
Western operations 43 34
Northeastern U.S. operations 25 41
Bruce Power L.P. investment 38 -
Power LP investment 11 10
General, administrative and support costs (21) (17)
Operating and other income 96 68
Financial charges (2) (3)
Income taxes (31) (24)
Net earnings 63 41
Power's net earnings of $63 million for the three months ended March 31, 2003
were $22 million higher when compared to the same period in 2002. Strong
earnings from the recently acquired interest in Bruce and the addition of the
ManChief plant in late 2002 were the major contributors to this increase,
partially offset by lower earnings from the Northeastern U.S. Operations.
Operating and other income from Western Operations of $43 million for the three
months ended March 31, 2003 was $9 million higher compared to the same period in
2002 mainly due to the acquisition of the ManChief facility in November 2002 and
lower electricity transmission tariffs.
Operating and other income from the Northeastern U.S. Operations was $16 million
lower for first quarter 2003 compared to first quarter 2002. The decrease is
primarily due to the higher cost of fuel gas at Ocean State Power (OSP) and
subsequent limited opportunity to resell gas at a profit, and lower water flows
from the Curtis Palmer hydroelectric facility.
In December 2002, OSP concluded an arbitration process with respect to its cost
of fuel gas, which substantially increased the cost of fuel for December 2002
through to March 2003. A decision was received on a second arbitration in late
March 2003, effective April 2003. This decision is not materially different from
the December 2002 decision.
Power completed the acquisition of a 31.6 per cent interest in Bruce on February
14, 2003. Bruce consists of two nuclear plants. Bruce B has four reactors
currently generating a total of 3,140 megawatts (MW). Bruce A consists of four
769 MW reactors which are not operating, however, two units are currently
undergoing restart activities. Bruce contributed $38 million of equity income
($27 million after tax) in first quarter 2003 from the date of acquisition with
an achieved average selling price of $63/MW hour. The four Bruce B units ran at
100 per cent availability during the entire first quarter 2003, the best
performance in the plant's history, and approximately 45 per cent of this output
was sold into Ontario's wholesale spot market. The $38 million contribution
reflected strong plant performance and higher than expected market prices in the
wholesale spot market as a result of colder than normal weather conditions and
increased demand for electricity.
Given the expected critical demand for power in Ontario this summer, Bruce has
accelerated its restart activities to ensure the two Bruce A units are available
during this critical period. The expectation is that the facility should have
full production from the two Bruce A units by the end of June 2003. As a result
of these additional efforts, the total restart costs to be incurred by Bruce are
expected to be approximately 20 per cent higher than the previous estimate of
$450 million (TransCanada's 31.6 per cent share - $142 million), which was
comprised of $400 million for the Bruce A Restart Project and $50 million of
deferred startup costs.
Equity income from Bruce is directly impacted by fluctuations in spot market
prices for electricity as well as overall plant availability which, in turn, is
impacted by scheduled and unscheduled maintenance. To reduce its exposure to
spot market prices, Bruce has entered into fixed price sales contracts for
approximately 1,600 MW of output for the remainder of 2003. There is a planned
maintenance outage at one of the four Bruce B units for most of the second
quarter 2003, which will reduce quarterly output accordingly. Similarly, there
is an approximate one month planned outage at one Bruce B unit and one Bruce A
unit in the third and fourth quarter 2003, respectively.
Operating and other income from the investment in TransCanada Power, L.P. was
slightly higher for the three months ended March 31, 2003 compared to the same
period in 2002, mainly due to increased earnings from the Ontario plants and the
unplanned outage that occurred at the Williams Lake plant in first quarter 2002.
Power Sales Volumes*
Three months ended March 31 (unaudited)
(gigawatt hours) 2003 2002
Western operations 2,614 2,828
Northeastern U.S. operations 1,669 1,152
Bruce Power L.P. investment 1,087 -
Power LP investment 565 571
Total 5,935 4,551
*Power sales volumes include TransCanada's share of Bruce Power L.P. (31.6 per cent) and
Sundance B power purchase arrangement (50 per cent) output.
Weighted Average Plant Availability
Three months ended March 31 (unaudited) 2003 2002
Western operations 98% 98%
Northeastern U.S. operations 84% 99%
Bruce Power L.P. investment 100% -
Power LP investment 98% 93%
All plants 96% 97%
Corporate
Net expenses were $13 million and $17 million for the three months ended March
31, 2003 and 2002, respectively. This $4 million improvement is primarily due to
the positive impact of lower interest costs in first quarter 2003 compared to
the same period in the prior year.
Liquidity and Capital Resources
Funds Generated from Operations
Funds generated from operations of $457 million for first quarter 2003 are
consistent with the same period in the prior year.
TransCanada expects that its ability to generate sufficient amounts of cash in
the short term and the long term when needed, and to maintain financial capacity
and flexibility to provide for planned growth is adequate, and remains
substantially unchanged since December 31, 2002.
Investing Activities
In the three months ended March 31, 2003, capital expenditures, excluding
acquisitions, totalled $76 million (2002 - $117 million) and related primarily
to Iroquois' ongoing Eastchester Expansion project into New York City,
maintenance and capacity capital in wholly-owned pipelines and ongoing
construction of the MacKay River power plant in Alberta. Acquisitions for the
three months ended March 31, 2003 totalled $409 million (2002 - nil) and were
almost entirely comprised of the acquisition of a 31.6 per cent interest in
Bruce for $376 million plus closing adjustments.
Financing Activities
TransCanada used a portion of its cash resources to fund long-term debt
maturities of $9 million. The company issued notes payable of $209 million in
first quarter 2003.
Dividends
On April 25, 2003, TransCanada's Board of Directors declared a quarterly
dividend of $0.27 per share for the quarter ending June 30, 2003 on the
outstanding common shares. This is the 158th consecutive quarterly dividend paid
by TransCanada on its common shares, and is payable on July 31, 2003 to
shareholders of record at the close of business on June 30, 2003. The Board also
declared regular dividends on TransCanada's preferred shares.
Risk Management
With respect to continuing operations, TransCanada's market, financial and
counterparty risks remain substantially unchanged since December 31, 2002. The
company has retained certain exposures as a result of the divestiture of the Gas
Marketing business. For further information on risks, refer to Management's
Discussion and Analysis in TransCanada's 2002 Annual Report.
The processes within TransCanada's risk management function are designed to
ensure that risks are properly identified, quantified, reported and managed.
Risk management strategies, policies and limits are designed to ensure
TransCanada's risk-taking is consistent with its business objectives and risk
tolerance. Risks are managed within limits ultimately established by the Board
of Directors and implemented by senior management, monitored by risk management
personnel and audited by internal audit personnel.
TransCanada manages market risk exposures in accordance with its corporate
market risk policy and position limits. The company's primary market risks
result from volatility in commodity prices, interest rates, foreign currency
exchange rates and the failure of counterparties to meet contractual financial
obligations.
Controls and Procedures
Within 90 days prior to the filing of this quarterly report, TransCanada's
management evaluated the effectiveness of the design and operation of the
company's disclosure controls and procedures (disclosure controls) and internal
controls for financial reporting purposes (internal controls). Based on that
evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded that:
* TransCanada's disclosure controls are effective in ensuring that material
information relating to TransCanada is made known to management on a timely
basis, and is included in this quarterly report; and
* TransCanada's internal controls are effective in providing assurance that
the financial statements for this quarter are fairly presented in accordance
with Canadian generally accepted accounting principles.
To the best of these officers' knowledge and belief, there have been no
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date on which such
evaluation was completed in connection with this quarterly report.
Critical Accounting Policy
TransCanada's critical accounting policy, which remains unchanged since December
31, 2002, is the use of regulatory accounting for its regulated operations. For
further information on this critical accounting policy, refer to Management's
Discussion and Analysis in TransCanada's 2002 Annual Report.
Critical Accounting Estimates
Since a determination of many assets, liabilities, revenues and expenses is
dependent upon future events, the preparation of the company's consolidated
financial statements requires the use of estimates and assumptions which have
been made using careful judgment. TransCanada's critical accounting estimates,
which remain unchanged since December 31, 2002, are depreciation expense and
certain deferred after-tax gains and remaining obligations related to the Gas
Marketing business. For further information on these critical accounting
estimates, refer to Management's Discussion and Analysis in TransCanada's 2002
Annual Report.
Outlook
The strong contribution from Bruce in first quarter 2003 is expected to result
in higher Power net earnings in 2003 than originally anticipated. The company
does not expect its quarterly net earnings from Bruce to continue at this rate
for the remaining quarters of 2003. The outlook for the company's other segments
remains relatively unchanged since December 31, 2002. For further information on
outlook, refer to Management's Discussion and Analysis in TransCanada's 2002
Annual Report.
The company's earnings and cash flow combined with a strong balance sheet
continue to provide the financial flexibility for TransCanada to make
disciplined investments in its core businesses of Transmission and Power. Credit
ratings on the company's senior unsecured debt assigned by Dominion Bond Rating
Service Limited (DBRS), Moody's Investors Service (Moody's) and Standard &
Poor's are currently A, A2 and A-, respectively. Standard & Poor's has placed
its rating of TransCanada's senior unsecured debt on 'CreditWatch' with negative
implications. DBRS and Moody's continue to maintain a 'stable' outlook.
Other Recent Developments
Transmission
Wholly-Owned Pipelines
Canadian Mainline
In February 2003, the NEB denied the September 2002 request made by TransCanada
for a review and variance of the Fair Return decision. TransCanada maintains
that the Fair Return decision does not recognize the long-term business risks of
the Canadian Mainline. On March 21, 2003, TransCanada applied to the Federal
Court of Appeal for leave to appeal the Fair Return decision. If TransCanada's
leave to appeal application is successful, the appeal will go forward to the
Federal Court of Appeal. TransCanada is basing its leave to appeal application
on two questions of law.
The NEB hearing which commenced February 26, 2003 to consider the Canadian
Mainline 2003 Tolls and Tariff Application is still in process. In this
application, TransCanada is requesting approval of a higher composite
depreciation rate, introduction of a new tolling zone in southwestern Ontario,
an increase to the Interruptible Transportation bid floor price and cost/
efficiency incentive mechanisms.
Alberta System
In February 2003, TransCanada reached a settlement regarding the 2003 revenue
requirement for the Alberta System. The settlement is the result of a
consultative process that included producers, industrial users, consumer groups,
marketers and export groups. The one-year settlement establishes the Alberta
System's fixed revenue requirement for 2003. This settlement is currently before
the EUB for approval together with the Alberta System 2003 Tariff Settlement
which includes proposed modifications to rate design and an application for a
new service. These settlements are expected to form the basis of the Alberta
System tolls for 2003. TransCanada had originally applied to the EUB for
approval of two new services but, after consulting with its customers, has
withdrawn the application for one of the proposed services.
Power
In February 2003, TransCanada completed the acquisition of a 31.6 per cent
interest in Bruce for $376 million plus closing adjustments. TransCanada also
loaned a one-third share ($75 million) of a $225 million accelerated deferred
rent payment to Ontario Power Generation. Bruce is a tenant under a lease on the
Bruce nuclear power facility in Ontario. The lease expires in 2018 with an
option to extend the lease by up to 25 years.
TransCanada's newest power facility, the Bear Creek plant, commenced commercial
operations in first quarter 2003. This 80 megawatt cogeneration facility near
Grande Prairie, Alberta will sell, under a 25 year agreement, the majority of
its power to Weyerhaeuser at its Grande Prairie Pulp Mill as well as
Weyerhaeuser's other Alberta facilities.
Corporate
In first quarter 2003, TransCanada's Board of Directors unanimously recommended
common shareholders vote in favour of a proposal to create a new holding
company, TransCanada Corporation (Holdco), to become the parent of TransCanada
PipeLines Limited. The proposal will be voted on April 25, 2003 at TransCanada's
Annual and Special Meeting of Shareholders. The company will announce the
results of the vote after the Meeting. The financial statements of Holdco will
be prepared using the continuity of interests method. Accordingly, the financial
statements of Holdco on the effective date, on a consolidated basis, will in all
material respects be the same as those of TransCanada immediately prior to the
arrangement, except as to the accounting treatment of the company's preferred
securities and preferred shares. For further information on this, refer to
TransCanada's 2003 Management Proxy Circular.
--------------------------------------------------------------------------------
Forward-Looking Information
Certain information in this quarterly report is forward-looking and is subject
to important risks and uncertainties. The results or events predicted in this
information may differ from actual results or events. Factors which could cause
actual results or events to differ materially from current expectations include,
among other things, the ability of TransCanada to successfully implement its
strategic initiatives and whether such strategic initiatives will yield the
expected benefits, the availability and price of energy commodities, regulatory
decisions, competitive factors in the pipeline and power industry sectors, and
the prevailing economic conditions in North America. For additional information
on these and other factors, see the reports filed by TransCanada with Canadian
securities regulators and with the United States Securities and Exchange
Commission. TransCanada disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Consolidated Income
Three months ended March 31 (unaudited)
(millions of dollars except per share amounts) 2003 2002
Revenues 1,336 1,246
Operating Expenses
Cost of sales 180 133
Other costs and expenses 427 354
Depreciation 215 207
822 694
Operating Income 514 552
Other Expenses/(Income)
Financial charges 204 221
Financial charges of joint ventures 22 23
Equity income (58) (10)
Interest and other income (13) (11)
155 223
Income before Income Taxes 359 329
Income Taxes - Current and Future 136 128
Net Income 223 201
Preferred Securities Charges 9 9
Preferred Share Dividends 6 5
Net Income Applicable to Common Shares 208 187
Net Income Per Share - Basic and Diluted $0.43 $0.39
Average Shares Outstanding - Basic (millions) 480.1 477.0
Average Shares Outstanding - Diluted (millions) 481.9 479.1
See accompanying Notes to the Consolidated Financial Statements.
Consolidated Cash Flows
Three months ended March 31 (unaudited)
(millions of dollars) 2003 2002
Cash Generated From Operations
Net income 223 201
Depreciation 215 207
Future income taxes 74 53
Equity income in excess of distributions received (51) (4)
Other (4) (2)
Funds generated from operations 457 455
Increase in operating working capital (8) (54)
Net cash provided by continuing operations 449 401
Net cash provided by discontinued operations 4 58
453 459
Investing Activities
Capital expenditures (76) (117)
Acquisitions, net of cash acquired (409) -
Disposition of assets 5 -
Deferred amounts and other (23) 17
Net cash used in investing activities (503) (100)
Financing Activities
Dividends and preferred securities charges (139) (127)
Notes payable issued/(repaid), net 209 (171)
Reduction of long-term debt (9) (92)
Non-recourse debt of joint ventures issued 17 1
Reduction of non-recourse debt of joint ventures (16) (13)
Common shares issued 16 15
Net cash provided by/(used in) financing activities 78 (387)
Increase/(Decrease) in Cash and Short-Term Investments 28 (28)
Cash and Short-Term Investments
Beginning of period 212 299
Cash and Short-Term Investments
End of period 240 271
See accompanying Notes to the Consolidated Financial Statements.
Consolidated Balance Sheet
March 31, 2003 December 31,
(millions of dollars) (unaudited) 2002
ASSETS
Current Assets
Cash and short-term investments 240 212
Accounts receivable 724 691
Inventories 167 178
Other 84 102
1,215 1,183
Long-Term Investments 725 291
Plant, Property and Equipment 17,220 17,496
Other Assets 952 946
20,112 19,916
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable 506 297
Accounts payable 891 902
Accrued interest 245 227
Current portion of long-term debt 616 517
Current portion of non-recourse debt of joint ventures 70 75
Provision for loss on discontinued operations 232 234
2,560 2,252
Deferred Amounts 341 353
Long-Term Debt 8,616 8,815
Future Income Taxes 287 226
Non-Recourse Debt of Joint Ventures 1,179 1,222
Junior Subordinated Debentures 239 238
13,222 13,106
Shareholders' Equity
Preferred securities 673 674
Preferred shares 389 389
Common shares 4,630 4,614
Contributed surplus 266 265
Retained earnings 933 854
Foreign exchange adjustment (1) 14
6,890 6,810
20,112 19,916
See accompanying Notes to the Consolidated Financial Statements.
Consolidated Retained Earnings
Three months ended March 31 (unaudited)
(millions of dollars) 2003 2002
Balance at beginning of period 854 586
Net income 223 201
Preferred securities charges (9) (9)
Preferred share dividends (6) (5)
Common share dividends (129) (119)
933 654
See accompanying Notes to the Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(Unaudited)
1. Significant Accounting Policies
The consolidated financial statements of TransCanada PipeLines Limited
(TransCanada or the company) have been prepared in accordance with Canadian
generally accepted accounting principles. The accounting policies applied
are consistent with those outlined in the company's annual financial
statements for the year ended December 31, 2002 except as stated below.
These consolidated financial statements do not include all disclosures
required in the annual financial statements and should be read in
conjunction with the annual financial statements included in TransCanada's
2002 Annual Report. Amounts are stated in Canadian dollars unless otherwise
indicated. Certain comparative figures have been reclassified to conform
with the current period's presentation.
Since a determination of many assets, liabilities, revenues and expenses is
dependent upon future events, the preparation of these consolidated
financial statements requires the use of estimates and assumptions. In the
opinion of Management, these consolidated financial statements have been
properly prepared within reasonable limits of materiality and within the
framework of the company's significant accounting policies.
2. Segmented Information
Transmission Power Corporate Total
Three months ended March 31 2003 2002 2003 2002 2003 2002 2003 2002
(unaudited - millions of dollars)
Revenues 960 941 376 305 - - 1,336 1,246
Cost of sales - - (180) (133) - - (180) (133)
Other costs and expenses (304) (260) (121) (92) (2) (2) (427) (354)
Depreciation (194) (192) (21) (15) - - (215) (207)
Operating income/(loss) 462 489 54 65 (2) (2) 514 552
Financial and preferred equity (196) (206) (2) (3) (21) (26) (219) (235)
charges
Financial charges of joint (22) (23) - - - - (22) (23)
ventures
Equity income 20 10 38 - - - 58 10
Interest and other income 5 6 4 3 4 2 13 11
Income taxes (111) (113) (31) (24) 6 9 (136) (128)
Net Income Applicable to Common 158 163 63 41 (13) (17) 208 187
Shares
Total Assets March 31, 2003 December 31,
(millions of dollars) (unaudited) 2002
Transmission 16,651 16,979
Power 2,718 2,292
Corporate 568 457
Continuing Operations 19,937 19,728
Discontinued Operations 175 188
20,112 19,916
3. Discontinued Operations
In July 2001, the Board of Directors approved a plan to dispose of the
company's Gas Marketing business. In December 1999, the Board of Directors
approved a plan (December Plan) to dispose of the company's International,
Canadian Midstream and certain other businesses. The company's disposals
under both plans were substantially completed at December 31, 2001.
The company remains contingently liable pursuant to obligations under
certain energy trading contracts that relate to the divested Gas Marketing
business. At March 31, 2003, the provision for loss on discontinued
operations, including approximately $100 million of deferred after-tax gains
and remaining obligations related to the Gas Marketing business, was
reviewed and was concluded to be appropriate.
Net income from discontinued operations for first quarter 2003 and first
quarter 2002 was nil. The provision for loss on discontinued operations at
March 31, 2003 was $232 million (December 31, 2002 - $234 million). The net
assets of discontinued operations included in the consolidated balance sheet
at March 31, 2003 were $76 million (December 31, 2002 - $90 million).
4. Contingencies
Actions have been brought on a class action basis against certain of the
company's subsidiaries and affiliates along with many other unrelated energy
companies in both Washington and Oregon claiming injunctive relief and/or
unspecified damages under the applicable unfair trading practices
legislation of those states in connection with the sale and purchase of
electricity in their respective jurisdictions. TransCanada considers the
complaint to be without merit and will be vigorously defending it.
The action brought against TransCanada and similar actions brought against
other unrelated energy companies by the California Attorney General, as
disclosed in the December 31, 2002 audited financial statements, was
dismissed by the U.S. Federal District Court in March 2003.
The company and its subsidiaries are subject to various other legal
proceedings and actions arising in the
normal course of business. While the final outcome of such legal proceedings
and actions cannot be predicted with certainty, it is the opinion of
management that their resolution will not have a material impact on the
company's consolidated financial position or results of operations.
5. Acquisition
On February 14, 2003, TransCanada completed the acquisition of a 31.6 per cent
interest in Bruce Power L.P. for $376 million plus closing adjustments.
TransCanada also loaned a one-third share ($75 million) of a $225 million
accelerated deferred rent payment to Ontario Power Generation. Bruce Power L.P.
is a tenant under a lease on the Bruce nuclear power facility in Ontario. The
lease expires in 2018 with an option to extend the lease by up to 25 years.
Upon acquisition of Bruce Power L.P., the company, Cameco and BPC Generation
Infrastructure Trust guaranteed on a several, pro-rata basis certain contingent
financial obligations of Bruce Power L.P. related to operator licences, the
lease agreement, power sales agreements and contractor services. TransCanada's
share of the net exposure under these guarantees at the time of closing was
estimated to be approximately $260 million. The terms of the guarantees range
from 2003 to 2018. The current carrying amount of the liability related to these
guarantees is nil and the fair value is approximately $4 million.
Supplementary Information
As at March 31, 2003, TransCanada had 480,532,023 issued and outstanding common
shares. In addition, there were 13,170,942 outstanding options to purchase
common shares, of which 10,370,941 were exercisable as at March 31, 2003.
TransCanada welcomes questions from shareholders and potential investors. Please telephone:
Investor Relations, at 1-800-361-6522 (Canada and U.S. Mainland) or direct dial David Moneta/Debbie Persad at (403)
920-7911. The investor fax line is (403) 920-2457. Media Relations: Glenn Herchak/Hejdi Feick at (403) 920-7877.
Visit TransCanada's Internet site at: http://www.transcanada.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
QRFKGGMVLVKGFZM