Full Year 2017 Highlights and Fourth Quarter Highlights (All financial figures are unaudited)

 

 

 

 

 

 

 

 

---

Recent Business Developments

Three Months Ended December 31, 2017 Results of Operations

For the three months ended December 31, 2017, our net income attributable to controlling interests was higher by $5 million compared to the same period in 2016 primarily due to the net effect of:

 

---

·	addition of 49.34 percent share of Iroquois' fourth quarter distribution;

·	higher distribution from Great Lakes due to higher earnings as described above;

·	lower distributions from Northern Border primarily due to their increased maintenance capital expenditures for compressor station overhauls;

·	higher maintenance capital expenditures from our consolidated subsidiaries, the majority of which related to major pipe integrity projects on GTN's pipeline system; and

·	higher financing costs due to additional borrowings to finance the 2017 Acquisition.

Twelve months ended December 31, 2017 Cash Flow Analysis

Operating Cash Flows

Net cash provided by operating activities decreased by $41 million in the twelve months ended December 31, 2017 compared to the same period in 2016 primarily due to lower cash generated from the operating activities of our subsidiaries primarily due to lower revenues and higher operating costs in addition to increased financing costs as a result of the 2017 Acquisition. We also received lower distributions from Great Lakes and Northern Border in 2017, partially offset by distributions received from Iroquois, resulting from the addition of Iroquois to our portfolio of assets effective June 1, 2017. Distributions received in the first quarter of 2016 from Great Lakes were higher than on a run-rate basis due to the resolution of certain regulatory proceedings in the fourth quarter of 2015 which inflated its results during that period and resulted in higher cash flow which was paid to the Partnership in the first quarter of 2016 and not applicable in the first quarter of 2017. Additionally, the Partnership received lower distributions from Northern Border in the current period compared to the same period in 2016 primarily due to higher maintenance capital expenditures during the current 2017 period together with the change in Northern Border's distribution policy during 2016 from a lagged quarterly distribution to a more timely monthly distribution that resulted in a larger distribution in the second quarter of 2016.

Investing Cash Flows

Net cash used in investing activities increased by $531 million in the twelve months ended December 31, 2017 compared to the same period in 2016.  On June 1, 2017, we invested $593 million to acquire a 49.34 percent interest in Iroquois and $53 million to acquire an additional 11.81 percent of PNGTS. In addition, on September 1, 2017, we contributed $83 million to Northern Border representing our 50 percent share of a requested capital contribution to reduce the outstanding balance of its revolving credit facility. During 2017, we also received a $5 million distribution from Iroquois as a return of surplus cash on its balance sheet. This resulted in a net increase of $531 million compared to 2016 where we invested $193 million on January 1 to acquire a 49.9 percent interest in PNGTS.

 

---

The net change in cash from our financing activities was an increase of approximately $532 million in the twelve months ended December 31, 2017 compared to the same period in 2016 primarily due to the net effect of:

·	$9 million increase in our ATM equity issuances in 2017 as compared to 2016;

·	$34 million increase in distributions paid to our common units and to our General Partner in respect of its two percent general partner interest and IDRs;

·	$10 million increase in distributions paid to Class B units;

·	$7 million decrease in distributions paid to non-controlling interest due to lower revenues on PNGTS compared to the previous periods; and

·	$8 million decrease in distributions paid to TransCanada as the former parent of PNGTS primarily due to the Partnership's acquisition of a 49.9 percent interest in PNGTS effective January 1, 2016 and additional 11.81 percent effective June 1, 2017.

At December 31, 2017, the Partnership's available borrowing capacity under its $500 million credit facility was $315 million.

 

Non-GAAP Financial Measures

The following non-GAAP financial measures are presented as a supplement to our financial statements:

·

EBITDA

·	Total distributable cash flow

·	Distributable cash flow

EBITDA is an approximate measure of our operating cash flow during the current earnings period and reconciles directly to the net income amount presented. It measures our earnings before deducting interest, taxes, depreciation and amortization and net income attributable to non-controlling interests and includes earnings from our equity investments.

Total distributable cash flow and distributable cash flow provide measures of distributable cash generated during the current earnings period and reconcile directly to the net income amounts presented.

 

Distributable cash flow is computed net of distributions declared to the General Partner and distributions allocable to Class B units. Distributions declared to the General Partner are based on its effective two percent interest plus an amount equal to incentive distributions. Distributions allocable to the Class B units equal 30 percent of GTN's distributable cash flow for the year ended December 31, 2017 less $20 million (2016 - less $20 million).

---

The non-GAAP financial measures described above are performance measures presented to assist investors in evaluating our business performance. We believe these measures provide additional meaningful information in evaluating our financial performance and cash generating capacity.

 

The non-GAAP financial measures presented as part of this release are provided as a supplement to GAAP financial results and are not meant to be considered in isolation or as substitutes for financial information prepared in accordance with GAAP. Additionally, these measures as presented may not be comparable to similarly titled measures of other companies.

 

For a reconciliation of these non-GAAP financial measures to GAAP measures, please see the table captioned "Reconciliation of Net income to Distributable Cash Flow" included at the end of this release.

 

 

–30–

 

---

TC PipeLines, LP

Financial Summary

Consolidated Statements of Income

 

		Three months ended				Twelve months ended
(unaudited)		December 31,				December 31,
(millions of dollars, except per common unit amounts)		2017		2016 (a)			2017		2016 (a)
Transmission revenues		109		111		422			426
Equity earnings		37		22		124			97
Operation and maintenance expenses		(19)		(17)		(67)			(58)
Property taxes		(7)		(6)		(28)			(27)
General and administrative		(3)		(2)		(8)			(7)
Depreciation		(24)		(25)		(97)			(96)
Financial charges and other		(23)		(18)		(82)			(71)
Net income before taxes		70		65		264			264
Income taxes		-		-		(1)			(1)
Net income		70		65		263			263
Net income attributable to non-controlling interests		4		4		11			15
Net income attributable to controlling interests		66		61		252			248
Net income attributable to controlling interest allocation
Common units		54		48		219			211
General Partner		5		2		16			11
TransCanada and its subsidiaries		7		11		17			26
		66		61		252			248
Net income per common unit  – basic and diluted (b)		$0.77		$0.70(c)		$3.16			$3.21(c)
Weighted average common units outstanding – basic and diluted (millions)		70.0		67.0		69.2			65.7
Common units outstanding, end of period (millions)		70.6		67.4		70.6			67.4

 

 

 

(a)

Financial information was recast to consolidate PNGTS for all periods presented. For more information, refer to our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.  Prior to the recast associated with the 2017 Acquisition, our net income attributable to controlling interests was $60 million and $244 million for the three and twelve months ended December 31, 2016, respectively, reflecting our 49.9 percent ownership in PNGTS. After the recast, net income attributable to controlling interests was $61 million and $248 million for the three and twelve months ended December 31, 2016, respectively, reflecting our 61.7 percent ownership in PNGTS. Net income attributable to PNGTS' former parent of $1 million and $4 million, reflecting the 11.81 percent interest not then owned by the Partnership, for the three and twelve months ended December 31, 2016, respectively, reconciles the net income as previously reported with that after the recast.

(b)

Net income per common unit is computed by dividing net income attributable to controlling interests, after deduction of amounts attributable to PNGTS' former parent, amounts attributable to the General Partner and Class B units, by the weighted average number of common units outstanding. The amount allocable to the General Partner equals an amount based upon the General Partner's effective two percent general partner interest, plus an amount equal to incentive distribution rights. For the year ended December 31, 2017, the amount allocable to the Class B units is equal to 30 percent of GTN's annual distributable cash flow, less the threshold amount of $20 million (2016 - $20 million).  During the three and twelve months ended December 31, 2017, the amount allocated to the Class B units was $7 million and $15 million, respectively. During the three and twelve months ended December 31, 2016 the amount allocated to the Class B units was $10 million and $22 million, respectively,

(c)	Net Income per common unit prior to recast.

---

(a)	Financial information was recast to consolidate PNGTS. For more information, refer to our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.

---

(a)	Financial information was recast to consolidate PNGTS. Accordingly, the total distributable cash flow for the three and twelve months ended December 31, 2016 did not change from the amounts reported prior to recast.

(b)	Interest expense as presented includes net realized loss related to the interest rates swaps and amortization of realized loss on PNGTS' derivative instruments. For more information, refer to our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.

(c)	Amounts are calculated in accordance with the cash distribution policies of each of our equity investments. Distributions from our equity investments represent our respective share of these entities' quarterly distributable cash during the current reporting period.

(d)

These amounts represent our proportional 49.34 percent share of the distribution declared by our equity investee Iroquois from the second to fourth quarter of 2017 and includes our 49.34 percent share of the Iroquois unrestricted cash distribution amounting to approximately $3 million and $8 million for the three and seven months ended December 31, 2017, respectively. For more information, refer to our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.

(e)	Distributions to non-controlling interests represent the respective share of our consolidated entities' distributable cash not owned by us during the periods presented.

(f)	Distributions to TransCanada as PNGTS' former parent represent TransCanada's respective share of PNGTS' distributable cash not owned by us during the periods presented.

(g)

The Partnership's maintenance capital expenditures include expenditures made to maintain, over the long term, the operating capacity, system integrity and reliability of our pipeline assets.  This amount represents the Partnership's and its consolidated subsidiaries' maintenance capital expenditures and does not include the Partnership's share of maintenance capital expenditures for our equity investments. Such amounts are reflected in "Distributions from equity investments" as those amounts are withheld by those entities from their quarterly distributable cash.

(h)	Distributions declared to the General Partner for the three and twelve months ended December 31, 2017 included an incentive distribution of approximately $3 million and $12 million, respectively (December 31, 2016 – $2 million and $7 million).

(i)

During the twelve months ended December 31, 2017, 30 percent of GTN's total distributions amounted to $35 million. As a result of exceeding the $20 million threshold since the third quarter of 2017, $8 million and $15 million was allocated to the Class B units for the three and twelve months ended December 31, 2017. During the twelve months ended December 31, 2016, 30 percent of GTN's total distributions amounted to $42 million. As a result of exceeding the $20 million threshold since the end of the second quarter of 2016, $22 million was allocated to the Class B units at December 31, 2016, of which $1 million, $11 million and $10 million were allocated during the three months ended June 30, 2016, September 30, 2016 and December 31, 2016, respectively. On January 23, 2018, the board of directors of our General Partner declared distributions to Class B unitholders in the amount of $15 million which was paid on February 13, 2018. The 2016 Class B distribution amounting to $22 million was paid by the Partnership on February 14, 2017.