SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 2003
COMMISSION FILE No. 1-31690
TRANSCANADA CORPORATION
(TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH)
450 - 1 STREET S.W., CALGARY, ALBERTA, T2P 5H1, CANADA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F)
Form 20-F Form 40-F X
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(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
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I
The documents listed below in this Section and filed as Exhibits 1 to 3 to this
Form 6-K are hereby filed with the Securities and Exchange Commission for the
purpose of being (and hereby are) incorporated into the following registration
statements filed by TransCanada Corporation under the Securities Act of 1933.
FORM REGISTRATION NO.
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S-8 33-00958
S-8 333-5916
S-8 333-8470
S-8 333-9130
F-3 33-13564
F-3 333-6132
1 Management's Discussion and Analysis of Financial Condition and Results
of Operations of the registrant as at and for the period ended
September 30, 2003.
2 Consolidated comparative interim unaudited financial statements of the
registrant for the nine month period ended September 30, 2003 (included
in the registrant's Third Quarter 2003 Quarterly Report to
Shareholders).
3 U.S. GAAP reconciliation of the consolidated comparative interim
unaudited financial statements of the registrant contained in the
registrant's Third Quarter 2003 Quarterly Report to Shareholders.
II
A copy of the Registrant's news release of October 28, 2003 and listed in the
Exhibit Index to this Form 6-K, is furnished herewith. This news release is
being furnished, not filed, and will not be incorporated by reference into any
registration statement filed by TransCanada Corporation under the Securities
Exchange Act of 1934, as amended, unless specifically identified therein as
being incorporated therein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANSCANADA CORPORATION
By: /s/ Russell K. Girling
-----------------------------
Russell K. Girling
Executive Vice-President, Corporate
Development and Chief Financial Officer
By: /s/ Lee G. Hobbs
-----------------------------
Lee G. Hobbs
Vice-President and Controller
October 29, 2003
EXHIBIT INDEX
1 Management's Discussion and Analysis of Financial Condition and Results
of Operations of the registrant as at and for the period ended
September 30, 2003.
2 Consolidated comparative interim unaudited financial statements of the
registrant for the nine month period ended September 30, 2003 (included
in the registrant's Third Quarter 2003 Quarterly Report to
Shareholders).
3 U.S. GAAP reconciliation of the consolidated comparative interim
unaudited financial statements of the registrant contained in the
registrant's Third Quarter 2003 Quarterly Report to Shareholders.
4 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act.
5 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act.
6 Certification of Chief Executive Officer regarding Periodic Report
containing Financial Statements.
7 Certification of Chief Financial Officer regarding Periodic Report
containing Financial Statements.
8 A copy of the Registrant's news release of October 28, 2003.
EXHIBIT 1
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THIRD QUARTER 2003
Quarterly Report to Shareholders
CONSOLIDATED RESULTS-AT-A-GLANCE
(unaudited) Three months ended September 30 Nine months ended September 30
(millions of dollars except per share amounts) 2003 2002 2003 2002
- ------------------------------------------------------------------- ----------------- ----------------- -----------------
NET INCOME
Continuing operations
198 175 608 567
Discontinued operations
50 - 50 -
---------------- ----------------- ----------------- -----------------
248 175 658 567
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
NET INCOME PER SHARE - BASIC
Continuing operations $0.41 $0.37 $1.26 $1.19
Discontinued operations
0.10 - 0.10 -
---------------- ----------------- ----------------- -----------------
$0.51 $0.37 $1.36 $1.19
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with the
accompanying unaudited consolidated financial statements of TransCanada
Corporation (TransCanada or the company) for the nine months ended September 30,
2003 and the notes thereto.
RESULTS OF OPERATIONS
CONSOLIDATED
TransCanada's net income for third quarter 2003 was $248 million or $0.51 per
share. This includes net income from discontinued operations which reflects
the income recognition of $50 million or $0.10 per share of the initially
deferred gain of approximately $100 million after tax relating to the 2001
disposition of the company's Gas Marketing business.
Net income from continuing operations (net earnings) for third quarter 2003 of
$198 million or $0.41 per share, increased by $23 million or $0.04 per share,
compared to $175 million or $0.37 per share for third quarter 2002. All segments
of the company contributed to the increase. Higher net earnings from the Power
business included $26 million after tax from TransCanada's investment in
THIRD QUARTER REPORT 2003
TRANSCANADA [2
Bruce Power L.P. (Bruce Power), partially offset by lower operating and other
income from Power's Western Operations. Higher net earnings in the Transmission
business were mainly due to TransCanada's $11 million share of future income tax
benefits recognized by TransGas de Occidente, partially offset by lower net
earnings from the Alberta System.
TransCanada's net income for the nine months ended September 30, 2003 was $658
million or $1.36 per share after reflecting net income from discontinued
operations of $50 million or $0.10 per share, compared to $567 million or $1.19
per share for the comparable period in 2002.
TransCanada's net earnings for the nine months ended September 30, 2003 were
$608 million or $1.26 per share compared to $567 million or $1.19 per share for
the comparable period in 2002. The increase of $41 million or $0.07 per share in
the first nine months of 2003 compared to the same period in 2002 was primarily
due to higher net earnings from the Power business and lower net expenses in the
Corporate segment, partially offset by lower net earnings from the Transmission
segment.
The Power segment net earnings for the nine months ended September 30, 2003
included $66 million after tax from TransCanada's investment in Bruce Power
which was acquired in February 2003 and a $19 million positive after-tax
earnings impact of a June 2003 settlement with a former counterparty which
defaulted in 2001 under power forward contracts. This amount represents the
value of power forward contracts terminated at the time of the counterparty's
default. These increases are partially offset by reduced operating and other
income from the Northeastern U.S. Operations, combined with higher general,
administrative and support costs.
The decrease in 2003 year-to-date net expenses in the Corporate segment compared
to the same period in the prior year was primarily due to lower general and
administrative expenses related to services that support discontinued
operations, lower net interest costs and the positive impact of foreign exchange
rates.
The lower net earnings in the Transmission segment for the nine months ended
September 30, 2003 compared to the same period in the prior year were primarily
due to the decline in the Alberta System's 2003 net earnings reflecting the
one-year fixed revenue requirement settlement reached between TransCanada and
its stakeholders in February 2003. In June 2002, TransCanada received the
National Energy Board (NEB) decision on its Fair Return application (Fair Return
decision) to determine the cost of capital to be included in the calculation of
2001 and 2002 final tolls on its Canadian Mainline. The results for the nine
months
THIRD QUARTER REPORT 2003
TRANSCANADA [3
ended September 30, 2002 included after-tax income of $30 million representing
the impact of the Fair Return decision for 2001 ($16 million) and nine months
ended September 30, 2002 ($14 million). The results for the nine months ended
September 30, 2002 also included TransCanada's $7 million share of a favourable
ruling for Great Lakes related to Minnesota use tax paid in prior years.
Funds generated from continuing operations of $516 million for third quarter
2003 increased $49 million compared to third quarter 2002. Funds generated from
continuing operations of $1,407 million for the nine months ended September 30,
2003 increased $47 million compared to the same period last year.
SEGMENT RESULTS-AT-A-GLANCE
(unaudited) Three months ended September 30 Nine months ended September 30
(millions of dollars) 2003 2002 2003 2002
- ------------------------------------------------------------------- ----------------- ---------------- -----------------
Transmission 160 154 462 491
Power 50 35 176 116
Corporate (12) (14) (30) (40)
----------------- ----------------- ---------------- -----------------
Continuing operations 198 175 608 567
Discontinued operations 50 - 50 -
----------------- ----------------- ---------------- -----------------
NET INCOME 248 175 658 567
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
TRANSMISSION
The Transmission business generated net earnings of $160 million and $462
million for the three and nine months ended September 30, 2003, respectively,
compared to $154 million and $491 million for the same periods in 2002.
THIRD QUARTER REPORT 2003
TRANSCANADA [4
TRANSMISSION RESULTS-AT-A-GLANCE
(unaudited) Three months ended September 30 Nine months ended September 30
(millions of dollars) 2003 2002 2003 2002
- ------------------------------------------------------------------- ----------------- ---------------- ---------------
WHOLLY-OWNED PIPELINES
Alberta System 50 56 136 158
Canadian Mainline 73 72 215 232
Foothills* 5 4 14 13
BC System - 1 4 4
--------------- ----------------- ---------------- ---------------
128 133 369 407
--------------- ----------------- ---------------- ---------------
NORTH AMERICAN PIPELINE VENTURES
Great Lakes 10 13 38 49
Iroquois 4 4 15 15
TC PipeLines, LP 4 4 11 12
Portland - - 7 2
Ventures LP 3 2 7 5
Trans Quebec & Maritimes 2 2 6 6
CrossAlta - 2 4 9
TransGas de Occidente 13 3 20 5
Northern Development (1) (3) (2) (5)
General, administrative, support and other (3) (6) (13) (14)
--------------- ----------------- ---------------- ---------------
32 21 93 84
--------------- ----------------- ---------------- ---------------
Net earnings 160 154 462 491
--------------- ----------------- ---------------- ---------------
--------------- ----------------- ---------------- ---------------
* The remaining interests in Foothills, previously not held by TransCanada, were
acquired in August 2003. Amounts in this table reflect TransCanada's
proportionate interest in Foothills' earnings prior to the acquisition and 100
per cent interest thereafter.
WHOLLY-OWNED PIPELINES
The Alberta System's net earnings of $50 million in third quarter 2003 decreased
$6 million compared to $56 million in the same quarter of 2002. Net earnings of
$136 million for the nine months ended September 30, 2003 decreased $22 million
compared to the same period in 2002. The decrease is primarily due to lower
earnings from the one-year 2003 Alberta System Revenue Requirement Settlement
(the 2003 Settlement) reached in February 2003. The 2003 Settlement includes a
fixed revenue requirement component, before non-routine adjustments, of $1.277
billion compared to $1.347 billion in 2002. The Alberta System's annual net
earnings in 2003, initially expected to be approximately $40 million lower than
2002 annual net earnings of $214 million, are now expected to be approximately
$30 million below 2002 net earnings. This improved outlook for 2003 net earnings
is primarily attributable to lower financing and operating costs than initially
anticipated.
THIRD QUARTER REPORT 2003
TRANSCANADA [5
The Canadian Mainline's net earnings have increased $1 million and decreased $17
million for the three and nine months ended September 30, 2003, respectively,
when compared to the corresponding periods in 2002. The decrease in year-to-date
2003 net earnings as compared to net earnings in the same period in 2002 is
mainly due to the NEB's Fair Return decision, which resulted in the recognition
in June 2002 of $16 million of net earnings related to the year ended December
31, 2001. Net earnings in 2003 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,
offset by a lower average investment base.
In December 2002, the NEB approved TransCanada's application to charge interim
tolls for transportation service, effective January 1, 2003. In August 2003, the
NEB approved interim tolls that the company will charge for the period September
1, 2003 to December 31, 2003. The NEB ordered that tolls will remain interim
pending a decision from the Federal Court of Appeal on TransCanada's Fair Return
Review and Variance Application.
On August 15, 2003, TransCanada acquired the remaining interests of Foothills
Pipe Lines Ltd. (Foothills) and its subsidiaries from Duke Energy Gas
Transmission (Duke) for $259 million, including assumption of $154 million of
Duke's proportionate share of Foothills' corporate debt. The net earnings prior
to the acquisition reflect TransCanada's previous interests in Foothills. Prior
to the acquisition, TransCanada directly and indirectly owned 50 per cent of
Foothills, 69.5 per cent of Foothills (Sask.), 74.5 per cent of Foothills
(Alta.) and 74.5 per cent of Foothills (South B.C.).
OPERATING STATISTICS
Nine months ended September 30 Alberta Canadian BC
(unaudited) System* Mainline** Foothills*** System
- --------------------------------------- ------------------- ------------------- ---------------- -------------------
2003 2002 2003 2002 2003 2002 2003 2002
------------------- ------------------- ---------------- -------------------
Average investment base ($ millions) 4,909 5,089 8,601 8,909 742 *** 237 204
Delivery volumes (Bcf)
Total 2,893 3,076 1,990 1,950 813 *** 227 270
Average per day 10.6 11.3 7.3 7.1 3.0 *** 0.8 1.0
- ----------------------------------------------------------------------------------------------------------------------
* Field receipt volumes for the Alberta System for the nine months ended
September 30, 2003 were 2,926 Bcf (2002 - 3,094 Bcf); average per day was
10.7 Bcf (2002 - 11.3 Bcf).
** Canadian Mainline deliveries originating at the Alberta border and in
Saskatchewan for the nine months ended September 30, 2003 were 1,572 Bcf
(2002 - 1,665 Bcf); average per day was 5.8 Bcf (2002 - 6.1 Bcf).
*** The remaining interests in Foothills were acquired in August 2003. The
year-to-date 2003 delivery volumes in the table represent 100 per cent of
Foothills.
THIRD QUARTER REPORT 2003
TRANSCANADA [6
NORTH AMERICAN PIPELINE VENTURES
TransCanada's proportionate share of net earnings from its other Transmission
businesses was $32 million and $93 million for the three and nine months ended
September 30, 2003, respectively.
Net earnings for third quarter 2003 were $11 million higher than the same
quarter in 2002 primarily as a result of TranCanada's $11 million share of
future income tax benefits recognized by TransGas de Occidente. In addition,
there were higher operating earnings from Ventures LP, and lower spending on
Northern Development. These increases were partially offset by lower
contributions from CrossAlta, higher operating costs in Great Lakes and the
impact of a weaker U.S. dollar.
The 2002 year-to-date results 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 ruling in 2002, net earnings for
the nine months ended September 30, 2003 increased $16 million compared to the
same period in 2002. TransCanada's share of Portland's net earnings has
increased $5 million for the nine months ended September 30, 2003 compared to
the same period in 2002, primarily as a result of a rate settlement in early
2003 and a subsequent positive depreciation adjustment related to 2002 and
recorded by TransCanada in 2003. In addition, earnings from TransGas de
Occidente were higher as a result of higher contractual tolls and recognition of
future income tax benefits. These increases were offset by lower earnings from
CrossAlta and a weaker U.S. dollar.
THIRD QUARTER REPORT 2003
TRANSCANADA [7
POWER
POWER RESULTS-AT-A-GLANCE
(unaudited) Three months ended September 30 Nine months ended September 30
(millions of dollars) 2003 2002 2003 2002
- ----------------------------------------------------------------------- --------------- --------------- ---------------
Western operations 26 40 129 101
Northeastern U.S. operations 30 27 91 114
Bruce Power L.P. investment 38 - 92 -
Power LP investment 8 9 26 27
General, administrative and support costs (23) (17) (66) (48)
---------------- --------------- --------------- ---------------
Operating and other income 79 59 272 194
Financial charges (2) (3) (8) (9)
Income taxes (27) (21) (88) (69)
---------------- --------------- --------------- ---------------
Net earnings 50 35 176 116
---------------- --------------- --------------- ---------------
---------------- --------------- --------------- ---------------
Power's net earnings of $50 million in third quarter 2003 increased $15 million
compared to $35 million in third quarter 2002. Earnings from the recently
acquired interest in Bruce Power was the primary reason for the increase.
Partially offsetting this increase was a lower contribution from Western
Operations and higher general, administrative and support costs.
Net earnings of $176 million for the nine months ended September 30, 2003 were
$60 million higher when compared to the same period in 2002. Bruce Power
earnings, a settlement in second quarter 2003 in Western Operations for the
value of power forward contracts terminated with a former counterparty and the
addition of the ManChief plant in late 2002 were the primary reasons for the
increase. Partially offsetting the increase were lower earnings from the
Northeastern U.S. Operations and higher general, administrative and support
costs.
WESTERN OPERATIONS
Operating and other income in Western Operations for the three months ended
September 30, 2003 of $26 million was $14 million lower compared to the same
period in 2002. The decrease is due to lower prices achieved on power sales
as well as higher cost of natural gas fuel at the carbon black facility in
southern Alberta in 2003, partially offset by contribution from the ManChief
plant.
Operating and other income in Western Operations for the nine months ended
September 30, 2003 of $129 million was $28 million higher compared to the same
period in 2002, mainly due to a $31 million pre-tax ($19 million after tax)
positive earnings impact related to a June 2003 settlement with a former
counterparty which defaulted in 2001 under power forward contracts. The ManChief
acquisition in 2002 also contributed to higher operating income. Partially
offsetting these increases were the effects in 2003 of lower prices achieved
on the overall sale of power and
THIRD QUARTER REPORT 2003
TRANSCANADA [8
higher cost of natural gas fuel at the carbon black facility.
NORTHEASTERN U.S. OPERATIONS
Operating and other income in Northeastern U.S. Operations of $30 million for
the three months ended September 30, 2003 increased $3 million compared to the
same period in 2002 primarily due to increased water flows through the Curtis
Palmer hydroelectric facility.
Operating and other income in Northeastern U.S. Operations of $91 million for
the nine months ended September 30, 2003 decreased $23 million compared to
the same period in 2002 primarily due to the higher cost of natural gas fuel
at Ocean State Power (OSP) resulting from an arbitration process, fewer
market opportunities in the first half of 2003 than in 2002 and the
unfavourable impact of a weaker U.S. dollar. OSP is currently in discussions
with its natural gas fuel supplier regarding changes to the price of its fuel
supply.
BRUCE POWER L.P. INVESTMENT
BRUCE POWER L.P. (100 PER CENT BASIS)
(unaudited) Three months ended Nine months ended
(millions of dollars) September 30, 2003 September 30, 2003
- -------------------------------------------------------------------------------------------- ----------------------
Revenues 297 939
Operating expenses 196 599
--------------------- ----------------------
Operating income 101 340
Financial charges 17 49
--------------------- ----------------------
Income before income taxes 84 291
--------------------- ----------------------
--------------------- ----------------------
TransCanada's interest in Bruce Power income before income taxes* 27 66
Adjustments** 11 26
--------------------- ----------------------
TransCanada's income from Bruce Power before income taxes 38 92
--------------------- ----------------------
--------------------- ----------------------
* TransCanada acquired its interest in Bruce Power on February 14, 2003. Bruce
Power's 100 per cent income before income taxes from February 14 to September
30, 2003 was $210 million.
** See Note 7 to the September 30, 2003 financial statements for an
explanation of the purchase price amortizations.
Bruce Power contributed $38 million of pre-tax equity income in third quarter
2003 compared to $16 million in second quarter 2003. The increase reflected
higher output compared to the second quarter 2003 when one of the Bruce B units
was on a planned maintenance outage for almost the entire second quarter.
Overall prices achieved during third quarter 2003 were $45 per megawatt hour
(MWh) which is consistent with second quarter 2003. The average price achieved
for the nine months ended September 30, 2003 was approximately $49 per MWh.
Approximately 34 per cent of the output was sold into Ontario's wholesale spot
market in third
THIRD QUARTER REPORT 2003
TRANSCANADA [9
quarter 2003 with the remainder being sold under longer term contracts.
TransCanada's share of power output for third quarter 2003 was 2,041 gigawatt
hours (GWh) compared to 1,681 GWh in second quarter 2003. The Bruce B units ran
at an average availability of 94 per cent for third quarter 2003. The average
availability during TransCanada's period of ownership ending September 30, 2003
was 88 per cent.
On October 7, 2003, Bruce A Unit 4 began producing electricity to the Ontario
electricity grid. After performing and evaluating tests of the shutdown system,
Bruce A Unit 4 is expected to reconnect to the grid and will begin ramping up to
full power. Bruce Power is also working towards the removal of the Canadian
Nuclear Safety Commission shutdown guarantees on Bruce A Unit 3. Following the
removal of the shutdown guarantees, Bruce A Unit 3 will undergo similar
commissioning tests and procedures as with Bruce A Unit 4. The cumulative
restart cost incurred by Bruce Power to the end of September 2003 for the two
Bruce A units was approximately $688 million. Bruce Power has incurred
approximately $315 million on the two unit restart program in the first nine
months of 2003 of which $80 million was incurred in third quarter 2003.
TransCanada has a 31.6 per cent interest in Bruce Power.
Equity income from Bruce Power is directly impacted by fluctuations in wholesale
spot market prices for electricity as well as overall plant availability, which
in turn, is impacted by scheduled and unscheduled maintenance. Bruce B Unit 8
began scheduled maintenance on September 20, 2003 which is expected to continue
into the middle of fourth quarter 2003. To reduce its exposure to spot market
prices, Bruce Power has entered into fixed price sales contracts for
approximately 1,850 megawatts (MW) of output for the remainder of 2003.
POWER LP INVESTMENT
Operating and other income of $8 million and $26 million for the three and nine
months ended September 30, 2003, was consistent with the same periods in 2002.
GENERAL, ADMINISTRATIVE AND SUPPORT COSTS
General, administrative and support costs for the three and nine months ended
September 30, 2003 increased $6 million and $18 million, respectively, compared
to the same periods in 2002, mainly reflecting higher support costs as part of
the company's continued investment in Power.
THIRD QUARTER REPORT 2003
TRANSCANADA [10
POWER SALES VOLUMES*
(unaudited) Three months ended September 30 Nine months ended September 30
(GWh) 2003 2002 2003 2002
- ------------------------------------------------ --------------------------------- ---------------------------------
Western operations 3,068 2,876 9,324 9,201
Northeastern U.S. operations 1,719 1,542 5,112 4,117
Bruce Power L.P. investment** 2,041 n/a 4,809 n/a
Power LP investment 582 651 1,604 1,779
---------------- ---------------- --------------- ----------------
Total 7,410 5,069 20,849 15,097
---------------- ---------------- --------------- ----------------
---------------- ---------------- --------------- ----------------
* Power sales volumes include TransCanada's share of Bruce Power L.P. output
(31.6 per cent) and the Sundance B power purchase arrangement (50 per cent).
** Acquired in February 2003. Sales volumes reflect TransCanada's share for the
period February 14, 2003 to September 30, 2003.
WEIGHTED AVERAGE PLANT AVAILABILITY*
Three months ended September 30 Nine months ended September 30
(unaudited) 2003 2002 2003 2002
- -------------------------------------------- ---------------------------------- -------------------------------------
Western operations 91% 98% 93% 97%
Northeastern U.S. operations 99% 99% 92% 99%
Bruce Power L.P. investment** 94% n/a 88% n/a
Power LP investment 99% 98% 95% 94%
All plants 96% 99% 91% 97%
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
* Plant availability is reduced by planned and unplanned outages.
** Acquired in February 2003. TransCanada's availability reflects the period
February 14, 2003 to September 30, 2003 and refers only to the Bruce B units.
CORPORATE
Net expenses were $12 million and $14 million for the three months ended
September 30, 2003 and 2002, respectively. This $2 million decrease in net
expenses for third quarter 2003 is mainly due to lower general and
administrative expenses related to services that support discontinued
operations.
Net expenses were $30 million for the nine months ended September 30, 2003
compared to $40 million for the same period in 2002. This $10 million decrease
is primarily due to lower general and administrative expenses related to
services that support discontinued operations, lower net interest costs and the
positive impact of foreign exchange rates compared to the same period in the
prior year.
DISCONTINUED OPERATIONS
The Board of Directors approved a plan in July 2001 to dispose of the company's
Gas Marketing business. The company's exit from Gas Marketing was substantially
completed by December 31, 2001. The company mitigated its exposures associated
with the contingent liabilities related to the divested gas marketing operations
by obtaining from a subsidiary of Mirant Corporation (Mirant) certain remaining
contracts in June and July 2003, and simultaneously
THIRD QUARTER REPORT 2003
TRANSCANADA [11
hedging the market price exposures of these contracts. The company remains
contingently liable for certain residual obligations.
At September 30, 2003, TransCanada reviewed the provision for loss on
discontinued operations and the deferred gain, taking into consideration the
impacts of Mirant's filing for bankruptcy protection in July 2003 and the
mitigation of the contingent liabilities referred to above. As a result of this
review, $50 million of the original approximately $100 million after-tax
deferred gain was recognized in income in third quarter 2003. In addition,
TransCanada concluded that the remaining provision was adequate, and the
deferral of the remaining approximately $50 million of deferred after-tax gains
related to the divested Gas Marketing business was appropriate.
LIQUIDITY AND CAPITAL RESOURCES
FUNDS GENERATED FROM OPERATIONS
Funds generated from continuing operations were $516 million and $1,407 million
for the three and nine months ended September 30, 2003, respectively, compared
with $467 and $1,360 million for the same periods in 2002.
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 and nine months ended September 30, 2003, capital expenditures,
excluding acquisitions, totalled $81 million (2002 - $182 million) and $264
million (2002 - $397 million), respectively, 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 nine months ended September 30, 2003 totalled $547
million (2002 - $19 million) and were primarily comprised of:
- - in third quarter 2003, the acquisition of the remaining interests in
Foothills for approximately $105 million,
- - in third quarter 2003, the increase in interest in Portland Natural Gas
Transmission System (PNGTS) to 43.42 per cent for approximately US$19.3
million, and
- - in first quarter 2003, the acquisition of a 31.6 per cent interest in
Bruce Power for approximately $409 million including closing adjustments.
In addition, TransCanada assumed $154 million of debt on the Foothills
acquisition.
THIRD QUARTER REPORT 2003
TRANSCANADA [12
FINANCING ACTIVITIES
TransCanada used a portion of its cash resources to fund long-term debt
maturities of $386 million in the nine months ended September 30, 2003. In June
2003, the company issued US$350 million of ten year notes bearing interest at
4.00 per cent. For the nine months ended September 30, 2003, outstanding notes
payable increased by $279 million, while cash and short-term investments also
increased by $195 million.
In July 2003, TransCanada redeemed all of its outstanding US$160 million, 8.75
per cent Junior Subordinated Debentures, also known as Cumulative Trust
Originated Preferred Securities. Holders of these debentures received US$25.0122
per US$25.00 of the principal amount, which included accrued and unpaid interest
to the redemption date.
DIVIDENDS
On October 28, 2003, TransCanada's Board of Directors declared a quarterly
dividend of $0.27 per share for the quarter ending December 31, 2003 on the
outstanding common shares. This is the 160th consecutive quarterly dividend paid
by TransCanada and its subsidiary on its common shares, and is payable on
January 30, 2004 to shareholders of record at the close of business on December
31, 2003.
RISK MANAGEMENT
With respect to continuing operations, TransCanada's market, financial and
counterparty risks remain substantially unchanged since December 31, 2002. See
explanation for discontinued operations' risk management activity under Results
of Operations - Discontinued Operations. For further information on risks, refer
to Management's Discussion and Analysis in TransCanada PipeLines Limited'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 and financial 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 and foreign
currency exchange rates. TransCanada's counterparty risk exposure results from
the
THIRD QUARTER REPORT 2003
TRANSCANADA [13
failure of a counterparty to meet its contractual financial obligations, and
is managed in accordance with its corporate counterparty risk policy.
CONTROLS AND PROCEDURES
As of the end of the period covered by this quarterly report, TransCanada's
management together with TransCanada's President and Chief Executive Officer and
Chief Financial Officer evaluated the effectiveness of the design and operation
of the company's disclosure controls and procedures. Based on this evaluation,
the President and Chief Executive Officer and the Chief Financial Officer of
TransCanada have concluded that the disclosure controls and procedures are
effective.
There were no changes in TransCanada's internal control over financial reporting
during the most recent fiscal quarter that have materially affected or are
reasonably likely to materially affect TransCanada's internal control over
financial reporting.
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 PipeLines Limited'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
from December 31, 2002 continue to be 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 Results of Operations - Discontinued Operations and to
Management's Discussion and Analysis in TransCanada PipeLines Limited's 2002
Annual Report.
OUTLOOK
The company expects higher Power net earnings in 2003 than originally
anticipated as a result of the contribution from Bruce Power and the settlement
with a former counterparty. The outlook for the Alberta System has improved
since December 2002 as
THIRD QUARTER REPORT 2003
TRANSCANADA [14
discussed under Results of Operations in the Transmission
segment. 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 PipeLines Limited's 2002
Annual Report.
The company's net 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. The
strengthening of the Canadian dollar compared to the U.S. dollar in 2003 has not
and is not expected to significantly impact TransCanada's consolidated financial
results. Credit ratings on TransCanada PipeLines Limited'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. DBRS and Moody's both maintain a `stable' outlook on their ratings
and Standard & Poor's maintains a 'negative' outlook on its rating.
OTHER RECENT DEVELOPMENTS
TRANSMISSION
WHOLLY-OWNED PIPELINES
ALBERTA SYSTEM
In July 2003, TransCanada, along with other utilities, filed evidence in the
Generic Cost of Capital Proceeding with the Alberta Energy and Utilities Board
(EUB). TransCanada has requested a return on capital of 11 per cent based on a
deemed common equity of 40 per cent in its Generic Cost of Capital Application.
The EUB expects to adopt a standardized approach to determining the rate of
return and capital structure for all utilities under its jurisdiction at the
conclusion of this proceeding. This hearing is scheduled to commence on November
12, 2003.
In September 2003, TransCanada filed with the EUB the first phase of the 2004
General Rate Application (GRA), consisting of evidence in support of the applied
for rate base and revenue requirement. In the GRA, the company applied for a
composite depreciation rate
THIRD QUARTER REPORT 2003
TRANSCANADA [15
of 4.13 per cent compared to the current depreciation rate of 4.00 per cent. An
EUB hearing to consider the 2004 GRA Phase One application is scheduled to
commence on March 16, 2004 in Calgary. Phase Two of the application, dealing
primarily with rate design and services, is expected to be filed with the EUB on
November 14, 2003.
CANADIAN MAINLINE
In July 2003, the NEB issued its decision on TransCanada's 2003 Mainline Tolls
Application. In this decision, the NEB approved all key components of the
application including an increase in the composite depreciation rate from 2.89
per cent to 3.42 per cent, introduction of a new tolling zone in southwestern
Ontario, an increase to the Interruptible Transportation bid floor price and
continuation of the Fuel Gas Incentive Program. The rates included in this
decision are still considered interim pending the disposition of TransCanada's
appeal to the Federal Court of Appeal regarding the NEB's Review and Variance
(RH-R-1-2002) decision.
In July 2003, TransCanada filed a notice of appeal with the Federal Court of
Appeal and served notice of appeal on interested parties of the Review and
Variance application. The case is expected to be heard in an oral hearing late
this year or in the first quarter of 2004.
FOOTHILLS
In August 2003, TransCanada completed its purchase of the remaining interests of
Foothills and its subsidiaries from Duke for $259 million, including assumption
of $154 million of Duke's proportionate share of Foothills' corporate debt. As a
result, TransCanada now owns 100 per cent of Foothills and its subsidiaries.
Foothills and its subsidiaries hold the certificates to build the Canadian
portion of the Alaska Highway Project which would bring Prudhoe Bay natural gas
from Alaska to markets in Canada and the United States. The "prebuild" portion
of this project has been operating for more than 20 years, moving Alberta gas to
U.S. markets in advance of flows from Alaska. Subsidiaries of Foothills and
TransCanada also hold certificates to build the Alaskan section of this project.
NORTH AMERICAN PIPELINE VENTURES
PORTLAND
In third quarter 2003, TransCanada exercised its contractual right to increase
its ownership interest in PNGTS to 43.42 per cent from 33.29 per cent. On
September 29, 2003, the additional interest was purchased from DTE East Coast
Pipelines Company for
THIRD QUARTER REPORT 2003
TRANSCANADA [16
approximately US$47.1 million, including approximately US$27.8 million of
assumed debt.
On October 18, 2003, TransCanada entered into an agreement to acquire El Paso
Corporation's (El Paso) 29.64 per cent interest in PNGTS for approximately
US$137.2 million, including approximately US$80.7 million of assumed debt. The
transaction is expected to be completed by the end of this year and is subject
to the satisfaction of various closing conditions including the right of first
offer provisions.
Under the terms of the PNGTS partnership agreement, the other PNGTS partner, Gaz
Metropolitain and Company, Limited Partnership (Gaz Metropolitain), has the
right to acquire its pro rata share of El Paso's offered interest. This right is
exercisable for a period of thirty days after receipt of formal notice from El
Paso. Should this right of first offer not be exercised, TransCanada's interest
in Portland will increase to 73.06 per cent from 43.42 per cent. Should Gaz
Metropolitain's right of first offer be exercised, TransCanada's total interest
will increase to 61.71 per cent. The purchase price paid by TransCanada would be
reduced proportionately.
PNGTS operates a 471 kilometre, 220 million cubic feet per day interstate
natural gas pipeline which connects with the Trans Quebec & Maritimes Pipeline
(50 per cent owned by TransCanada) near Pittsburg, New Hampshire.
IROQUOIS
The Eastchester expansion project is experiencing construction delays, which has
resulted in a postponement of the expected in-service date.
LIQUEFIED NATURAL GAS
In September 2003, TransCanada and ConocoPhillips Company announced the
Fairwinds partnership to jointly evaluate a site in Harpswell, Maine for the
development of a liquefied natural gas (LNG) regasification facility. The
residents of the Town of Harpswell have been asked to vote on leasing a
town-owned site for the facility. If leasing of the site is approved and
necessary regulatory approvals are subsequently received, construction of the
LNG facility could begin in 2006 with the facility becoming operational in
2009. Natural gas from the LNG facility would be delivered by pipeline to
markets in the northeast U.S.
THIRD QUARTER REPORT 2003
TRANSCANADA [17
POWER
In August 2003, TransCanada successfully commenced operations under a fee for
service power purchase arrangement with the Ontario government through the
Ontario Electricity Financial Corporation (OEFC). Under the agreement,
TransCanada will supply 110 MW from a temporary facility adjacent to the
Canadian Mainline near Cobourg, Ontario, for a period ending as early as
December 31, 2003. The OEFC retains an option to extend the service contract
until April 30, 2004. The Cobourg facility was fully functional and in-service
August 10, 2003.
A power blackout affecting much of Ontario and the northeastern U.S. on August
14, 2003 created unplanned outages for some of TransCanada's power plants. Most
facilities were brought back on-line within hours and TransCanada was also able
to deliver additional power to the Ontario market through its Cobourg facility.
This power blackout did not have a material impact on TransCanada's net
earnings.
On October 24, 2003, TransCanada and Grandview Cogeneration Corporation, an
affiliate of Irving Oil Limited (Irving), announced an agreement to build a
90 MW natural gas-fired cogeneration power plant in Saint John, New Brunswick at
an estimated capital cost of $85 million. This cogeneration facility will be
developed and owned by TransCanada. Under a 20 year tolling arrangement,
Irving will provide fuel for the plant and contract for 100 per cent of the
plant's heat and electricity output. Pending regulatory approvals,
construction of the plant is expected to begin in November 2003 with an
anticipated in-service date by the end of 2004.
- --------------------------------------------------------------------------------
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.
EXHIBIT 2
THIRD QUARTER REPORT 2003
TRANSCANADA [18
CONSOLIDATED INCOME
(unaudited) Three months ended September 30 Nine months ended September 30
(millions of dollars except per share amounts) 2003 2002 2003 2002
- --------------------------------------------------------------------------- --------------- --------------- ---------------
REVENUES 1,391 1,285 4,038 3,876
OPERATING EXPENSES
Cost of sales 164 163 533 466
Other costs and expenses 439 386 1,248 1,123
Depreciation 260 211 692 631
------ ------ ------ ------
863 760 2,473 2,220
------ ------ ------ ------
OPERATING INCOME 528 525 1,565 1,656
OTHER EXPENSES/(INCOME)
Financial charges 210 213 619 652
Financial charges of joint ventures 18 22 63 67
Equity income (67) (8) (151) (26)
Interest and other income (9) (14) (44) (36)
------ ------ ------ ------
152 213 487 657
------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND NON-CONTROLLING INTERESTS 376 312 1,078 999
INCOME TAXES - CURRENT AND FUTURE 164 123 427 389
NON-CONTROLLING INTERESTS
Preferred securities charges 8 8 26 26
Preferred share dividends 6 6 17 17
------ ------ ------ ------
NET INCOME FROM CONTINUING OPERATIONS 198 175 608 567
NET INCOME FROM DISCONTINUED OPERATIONS 50 -- 50 --
------ ------ ------ ------
NET INCOME 248 175 658 567
------ ------ ------ ------
------ ------ ------ ------
NET INCOME PER SHARE
Continuing Operations $ 0.41 $ 0.37 $ 1.26 $ 1.19
Discontinued Operations 0.10 -- 0.10 --
------ ------ ------ ------
------ ------ ------ ------
BASIC $ 0.51 $ 0.37 $ 1.36 $ 1.19
------ ------ ------ ------
------ ------ ------ ------
DILUTED $ 0.51 $ 0.36 $ 1.36 $ 1.18
------ ------ ------ ------
------ ------ ------ ------
AVERAGE SHARES OUTSTANDING - BASIC (millions) 482.1 478.9 481.1 478.0
------ ------ ------ ------
------ ------ ------ ------
AVERAGE SHARES OUTSTANDING - DILUTED (millions) 484.4 481.3 483.2 480.2
------ ------ ------ ------
------ ------ ------ ------
See accompanying Notes to the Consolidated Financial Statements.
THIRD QUARTER REPORT 2003
TRANSCANADA [19
CONSOLIDATED CASH FLOWS
(unaudited) Three months ended September 30 Nine months ended September 30
(millions of dollars) 2003 2002 2003 2002
- --------------------------------------------------------------------------- --------------- ----------------- ---------------
CASH GENERATED FROM OPERATIONS
Net income from continuing operations 198 175 608 567
Depreciation 260 211 692 631
Future income taxes 121 71 248 180
Equity income in excess of distributions received (66) (1) (125) (6)
Non-controlling interests 14 14 43 43
Other (11) (3) (59) (55)
--------------- --------------- ----------------- ---------------
Funds generated from continuing operations 516 467 1,407 1,360
Decrease/(increase) in operating working capital 67 (12) 83 (68)
--------------- --------------- ----------------- ---------------
Net cash provided by continuing operations 583 455 1,490 1,292
Net cash provided by/(used in) discontinued operations 67 (21) (17) 30
--------------- --------------- ----------------- ---------------
650 434 1,473 1,322
--------------- --------------- ----------------- ---------------
INVESTING ACTIVITIES
Capital expenditures (81) (182) (264) (397)
Acquisitions, net of cash acquired (135) (19) (547) (19)
Disposition of assets - - 5 -
Deferred amounts and other (168) 62 (238) (12)
--------------- --------------- ----------------- ---------------
Net cash used in investing activities (384) (139) (1,044) (428)
--------------- --------------- ----------------- ---------------
FINANCING ACTIVITIES
Dividends and preferred securities charges (150) (140) (438) (407)
Notes payable issued/(repaid), net 361 12 279 (228)
Long-term debt issued - - 475 -
Reduction of long-term debt (327) (114) (386) (230)
Non-recourse debt of joint ventures issued 14 19 60 24
Reduction of non-recourse debt of joint ventures (7) (9) (55) (51)
Redemption of junior subordinated debentures (218) - (218) -
Common shares issued 11 12 49 43
--------------- --------------- ----------------- ---------------
Net cash used in financing activities (316) (220) (234) (849)
--------------- --------------- ----------------- ---------------
(DECREASE)/INCREASE IN CASH AND SHORT-TERM INVESTMENTS (50) 75 195 45
CASH AND SHORT-TERM INVESTMENTS
Beginning of period 457 269 212 299
--------------- --------------- ----------------- ---------------
--------------- --------------- ----------------- ---------------
CASH AND SHORT-TERM INVESTMENTS
End of period 407 344 407 344
--------------- --------------- ----------------- ---------------
--------------- --------------- ----------------- ---------------
SUPPLEMENTARY CASH FLOW INFORMATION
Income taxes paid 68 50 192 205
Interest paid 186 217 618 639
--------------- --------------- ----------------- ---------------
--------------- --------------- ----------------- ---------------
See accompanying Notes to the Consolidated Financial Statements.
THIRD QUARTER REPORT 2003
TRANSCANADA [20
CONSOLIDATED BALANCE SHEET
September 30, 2003 December 31,
(millions of dollars) (unaudited) 2002
- ------------------------------------------------------------------------------------------------ -----------------------
ASSETS
CURRENT ASSETS
Cash and short-term investments 407 212
Accounts receivable 548 691
Inventories 174 178
Other 83 102
----------------------- -----------------------
1,212 1,183
LONG-TERM INVESTMENTS 792 291
PLANT, PROPERTY AND EQUIPMENT 17,076 17,496
OTHER ASSETS 1,246 946
----------------------- -----------------------
20,326 19,916
----------------------- -----------------------
----------------------- -----------------------
- ------------------------------------------------------------------------------------------------ -----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable 576 297
Accounts payable 806 902
Accrued interest 229 227
Current portion of long-term debt 526 517
Current portion of non-recourse debt of joint ventures 20 75
Provision for loss on discontinued operations 168 234
----------------------- -----------------------
2,325 2,252
DEFERRED AMOUNTS 424 353
LONG-TERM DEBT 9,233 8,815
FUTURE INCOME TAXES 434 226
NON-RECOURSE DEBT OF JOINT VENTURES 803 1,222
JUNIOR SUBORDINATED DEBENTURES 21 238
----------------------- -----------------------
13,240 13,106
----------------------- -----------------------
NON-CONTROLLING INTERESTS
Preferred securities of subsidiary 673 674
Preferred shares of subsidiary 389 389
----------------------- -----------------------
1,062 1,063
----------------------- -----------------------
SHAREHOLDERS' EQUITY
Common shares 4,663 4,614
Contributed surplus 267 265
Retained earnings 1,123 854
Foreign exchange adjustment (29) 14
----------------------- -----------------------
6,024 5,747
----------------------- -----------------------
20,326 19,916
----------------------- -----------------------
----------------------- -----------------------
See accompanying Notes to the Consolidated Financial Statements.
THIRD QUARTER REPORT 2003
TRANSCANADA [21
CONSOLIDATED RETAINED EARNINGS
(unaudited) Nine months ended September 30
(millions of dollars) 2003 2002
- ------------------------------------------------------------------------------------------------------------ ---------------
Balance at beginning of period 854 586
Net income 658 567
Common share dividends (389) (359)
--------------- ---------------
1,123 794
--------------- ---------------
--------------- ---------------
See accompanying Notes to the Consolidated Financial Statements.
THIRD QUARTER REPORT 2003
TRANSCANADA [22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Pursuant to a plan of arrangement, effective May 15, 2003, common shares of
TransCanada PipeLines Limited (TCPL) were exchanged on a one-to-one basis for
common shares of TransCanada Corporation (TransCanada or the company). As a
result, TCPL became a wholly-owned subsidiary of TransCanada. The consolidated
financial statements for the nine months ended September 30, 2003 include the
accounts of TransCanada and the consolidated accounts of all its subsidiaries,
including TCPL. Comparative information for the nine months ended September 30,
2002 is that of TCPL and its wholly-owned subsidiaries at that time.
The financial statements of TransCanada have been prepared using the continuity
of interests method of accounting. Accordingly, the financial statements of
TransCanada on the effective date, on a consolidated basis, were in all material
respects the same as those of TCPL immediately prior to the arrangement, except
that the preferred securities and preferred shares of TCPL have been reflected
as non-controlling interests in the consolidated financial statements of
TransCanada. In addition, the distributions on the preferred securities and the
dividends on the preferred shares have been reflected as non-controlling
interest charges in determining the consolidated net income of TransCanada.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of TransCanada have been prepared in
accordance with Canadian generally accepted accounting principles. The
accounting policies applied are consistent with those outlined in TCPL's annual
financial statements for the year ended December 31, 2002. These consolidated
financial statements reflect all normal recurring adjustments that are, in the
opinion of management, necessary to present fairly the financial position and
results of operations for the respective periods. 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 PipeLines Limited'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
THIRD QUARTER REPORT 2003
TRANSCANADA [23
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.
3. SEGMENTED INFORMATION
TRANSMISSION POWER CORPORATE TOTAL
- ------------------------------------------------------------------ -------------------- ------------------ -------------------
Three months ended September 30
(unaudited - millions of dollars) 2003 2002 2003 2002 2003 2002 2003 2002
- ------------------------------------------------------- ---------- --------- ---------- ------- ---------- --------- ---------
Revenues 1,070 971 321 314 - - 1,391 1,285
Cost of sales - - (164) (163) - - (164) (163)
Other costs and expenses (339) (301) (99) (81) (1) (4) (439) (386)
Depreciation (240) (196) (19) (15) (1) - (260) (211)
---------- ---------- --------- ---------- ------- ---------- --------- ---------
Operating income/(loss) 491 474 39 55 (2) (4) 528 525
Financial and non-controlling interest charges (198) (202) (2) (3) (24) (22) (224) (227)
Financial charges of joint ventures (18) (22) - - - - (18) (22)
Equity income 29 8 38 - - - 67 8
Interest and other income 3 6 2 4 4 4 9 14
Income taxes (147) (110) (27) (21) 10 8 (164) (123)
---------- ---------- --------- ---------- ------- ---------- --------- ---------
Continuing Operations 160 154 50 35 (12) (14) 198 175
---------- ---------- --------- ---------- ------- ----------
---------- ---------- --------- ---------- ------- ----------
Discontinued Operations 50 -
--------- ---------
NET INCOME 248 175
--------- ---------
--------- ---------
TRANSMISSION POWER CORPORATE TOTAL
- ------------------------------------------------------------------ -------------------- ------------------ -------------------
Nine months ended September 30
(unaudited - millions of dollars) 2003 2002 2003 2002 2003 2002 2003 2002
- ------------------------------------------------------- ---------- --------- ---------- ------- ---------- --------- ---------
Revenues 2,974 2,914 1,064 962 - - 4,038 3,876
Cost of sales - - (533) (466) - - (533) (466)
Other costs and expenses (944) (847) (299) (268) (5) (8) (1,248) (1,123)
Depreciation (629) (586) (62) (45) (1) - (692) (631)
---------- ---------- --------- ---------- ------- ---------- --------- ---------
Operating income/(loss) 1,401 1,481 170 183 (6) (8) 1,565 1,656
Financial and non-controlling interest charges (588) (616) (7) (9) (67) (70) (662) (695)
Financial charges of joint ventures (62) (67) (1) - - - (63) (67)
Equity income 59 26 92 - - - 151 26
Interest and other income 11 12 10 11 23 13 44 36
Income taxes (359) (345) (88) (69) 20 25 (427) (389)
---------- ---------- --------- ---------- ------- ---------- --------- ---------
Continuing Operations 462 491 176 116 (30) (40) 608 567
---------- ---------- --------- ---------- ------- ----------
---------- ---------- --------- ---------- ------- ----------
Discontinued Operations 50 -
--------- ---------
NET INCOME 658 567
--------- ---------
--------- ---------
THIRD QUARTER REPORT 2003
TRANSCANADA [24
TOTAL ASSETS September 30, 2003 December 31,
(millions of dollars) (unaudited) 2002
- -------------------------------------------------------------------------------- ------------------
Transmission 16,667 16,979
Power 2,675 2,292
Corporate 854 457
------------------ ------------------
Continuing Operations 20,196 19,728
Discontinued Operations 130 188
------------------ ------------------
20,326 19,916
------------------ ------------------
------------------ ------------------
4. JUNIOR SUBORDINATED DEBENTURES
On July 3, 2003, the company redeemed the US$160 million 8.75 per cent Junior
Subordinated Debentures. Holders of these debentures received US$25.0122 per
US$25.00 of the principal amount, which included accrued and unpaid interest to
the redemption date, without premium or penalty.
5. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
The following represents the significant changes to the company's risk
management and financial instruments since December 31, 2002.
FOREIGN INVESTMENTS
At September 30, 2003 and December 31, 2002, the company had foreign currency
denominated assets and liabilities which created an exposure to changes in
exchange rates. The company uses foreign currency derivatives to hedge this net
exposure on an after-tax basis. The company's portfolio of foreign investment
derivatives is comprised of contracts for periods up to four years. The fair
values shown in the table below for foreign exchange risk are offset by
translation gains or losses on the net assets and are recorded in the foreign
exchange adjustment in Shareholders' Equity.
ASSET/(LIABILITY) September 30, 2003
(millions of dollars) (unaudited) December 31, 2002
- --------------------------------------------- ------------------------------ -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------ -----------------------------
FOREIGN EXCHANGE VALUE
Cross-currency swaps
U.S. dollars 51 51 (8) (8)
- -----------------------------------------------------------------------------------------------------------------
At September 30, 2003, the notional principal amount of cross-currency swaps was
US$250 million (December 31, 2002 - US$350 million).
THIRD QUARTER REPORT 2003
TRANSCANADA [25
RECONCILIATION OF FOREIGN EXCHANGE ADJUSTMENT September 30, 2003 December 31,
(millions of dollars) (unaudited) 2002
- --------------------------------------------------------------------------- -------------------- --------------
Balance at beginning of period 14 13
Translation (losses)/gains on foreign currency denominated net assets (115) 3
Foreign exchange gains/(losses) on derivatives, and other 72 (2)
-------------------- --------------
Balance at end of period (29) 14
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6. STOCK-BASED COMPENSATION
TransCanada's accounting policy is to expense stock options. This charge is
reflected in the Transmission and Power segments. In the nine months ended
September 30, 2003, TransCanada issued 1,503,200 options to purchase common
shares at a weighted average price of $22.42 under the company's Key Employee
Stock Incentive Plan. Amounts expensed for the three and nine months ended
September 30, 2003 were approximately $1 million and approximately $2
million, respectively. The company used the Black-Scholes model for these
calculations with the weighted average assumptions being 4 years of expected
life, 4.1 per cent interest rate, 18 per cent volatility and 4.5 per cent
dividend yield.
7. 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 mitigated its exposures associated with the contingent liabilities
related to the divested gas marketing operations by obtaining from a subsidiary
of Mirant Corporation (Mirant) certain remaining contracts in June and July
2003, and simultaneously hedging the market price exposures of these contracts.
The company remains contingently liable for certain residual obligations.
At September 30, 2003, TransCanada reviewed the provision for loss on
discontinued operations and the deferred gain, taking into consideration the
impacts of Mirant's filing for bankruptcy protection in July 2003 and the
mitigation of the contingent liabilities referred to above. As a result of this
review, $50 million of the original approximately $100 million after-tax
deferred gain was recognized in income in third quarter 2003. In addition,
TransCanada concluded that the remaining provision was adequate, and the
deferral of the remaining approximately $50 million of deferred after-tax gains
related to the Gas Marketing business was appropriate.
Net income from discontinued operations was $50 million, net of $29 million in
taxes, for the three and nine months ended September 30, 2003 compared to nil
for the same periods in 2002. The provision for loss on discontinued operations
at September 30, 2003 was $168 million (December 31, 2002 - $234 million). The
net assets of discontinued operations included in the consolidated balance sheet
at September 30, 2003 were $94 million (December 31, 2002 - $90 million).
THIRD QUARTER REPORT 2003
TRANSCANADA [26
8. INVESTMENT IN BRUCE POWER L.P.
On February 14, 2003, TransCanada acquired a 31.6 per cent interest in Bruce
Power L.P. (Bruce Power) for approximately $409 million, including closing
adjustments. As part of the acquisition, TransCanada also funded a one-third
share ($75 million) of a $225 million accelerated deferred rent payment to
Ontario Power Generation, which is recorded in Other Assets.
The purchase price of TransCanada's 31.6 per cent interest in Bruce Power has
been allocated as follows.
PURCHASE PRICE ALLOCATION
(unaudited)
(millions of dollars)
- ----------------------------------------------------------------------------------------------
Net book value of assets acquired 281
Valuation of Bruce Power sales agreements (131)
Excess of fair value over book value of other net assets acquired 259
-------------
409
-------------
-------------
The amount allocated to the investment in Bruce Power includes an excess
purchase price of approximately $259 million over TransCanada's share of the
book value of the underlying net assets, other than the Bruce Power sales
agreements. This amount will be primarily assigned to the capital lease of
the Bruce plant and will be amortized on a straight-line basis over the lease
term which extends to 2018, resulting in an annual amortization expense of
approximately $16 million. The value, being $131 million, allocated to the
Bruce Power sales agreements will be amortized to income over the remaining
term of the underlying sales contracts. The approximate amount of income
relating to the amortization of the fair value allocated to these contracts
is: 2003 - $38 million; 2004 -$37 million; 2005 - $25 million; 2006 - $29
million; and 2007 - $2 million. The investment in Bruce Power L.P. is
recorded in Long-Term Investments.
9. COMMITMENT
On June 18, 2003, an agreement was reached among the Mackenzie Delta gas
producers, the Aboriginal PipeLine Group (APG) and TransCanada which governs
TransCanada's role in the Mackenzie Gas Pipeline Project. The Mackenzie Gas
Pipeline Project would result in a natural gas pipeline being constructed from
Inuvik, Northwest Territories to the northern border of Alberta, where it would
then connect with the Alberta System. Under the agreement, TransCanada has
agreed to finance the APG for its one-third share of project definition phase
costs; this share is estimated to be $80 million over three years. If the
pipeline is approved and becomes operational, this loan will be repaid from
APG's share of pipeline revenues.
THIRD QUARTER REPORT 2003
TRANSCANADA [27
SUPPLEMENTARY INFORMATION
As at September 30, 2003, TransCanada had 482,353,304 issued and outstanding
common shares. In addition, there were 11,202,041 outstanding options to
purchase common shares, of which 8,417,860 were exercisable as at September 30,
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 Stein 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
- -------------------------------------------------------------------------------
EXHIBIT 3
TRANSCANADA CORPORATION
SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP (UNAUDITED)
NET INCOME RECONCILIATION
NINE MONTHS ENDED SEPTEMBER 30 (MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 2003 2002
- ----------------------------------------------------------------------------- ---------------- ----------------
Net income from continuing operations in accordance with Canadian GAAP 608 567
U.S. GAAP adjustments(1)
Unrealized (loss)/gain on foreign exchange and interest rate derivatives(2) (6) 31
Tax impact of (loss)/gain on foreign exchange and interest rate derivatives 2 (12)
Unrealized gain/(loss) on energy trading contracts(3) 14 (14)
Tax impact of unrealized gain/(loss) on energy trading contracts (5) 6
Equity loss(2)(4) (12) -
Tax impact of equity loss 4 -
----- -----
Income from continuing operations in accordance with U.S. GAAP 605 578
Net income from discontinued operations in accordance with U.S. GAAP 50 -
----- -----
Income before cumulative effect of the application of EITF 02-3 in accordance with
U.S. GAAP 655 578
Cumulative effect of the application of EITF 02-3, net of tax(3) (13) -
----- -----
Net income in accordance with U.S. GAAP 642 578
----- -----
----- -----
Net income per share in accordance with U.S. GAAP
Continuing operations $1.26 $1.21
Discontinued operations 0.10 -
----- -----
Income before cumulative effect of the application of EITF 02-3 in accordance with
U.S. GAAP $1.36 $1.21
Cumulative effect of the application of EITF 02-3, net of tax(3) (0.03) -
----- -----
Basic $1.33 $1.21
----- -----
----- -----
Diluted $1.33 $1.20
----- -----
----- -----
Net income per share in accordance with Canadian GAAP
Basic $1.36 $1.19
----- -----
----- -----
Diluted $1.36 $1.18
----- -----
----- -----
Dividends per common share $0.81 $0.75
----- -----
----- -----
COMMON SHARES OUTSTANDING (millions)
Average for the period - Basic 481.1 478.0
----- -----
----- -----
Average for the period - Diluted 483.2 480.4
----- -----
----- -----
(1) Pursuant to a plan of arrangement, TransCanada Corporation (TransCanada or
the Company) became the parent company of TransCanada PipeLines Limited
(TCPL), effective May 15, 2003. The financial statements of TransCanada
have been prepared using the continuity of interests method. Accordingly,
the financial statements of TransCanada on the effective date, on a
consolidated basis, were in all material respects the same as
Page 1 of 9
TCPL immediately prior to the arrangement, except that under Canadian GAAP
the distributions on the preferred securities have been reflected as
non-controlling interest charges in determining the consolidated net income
of TransCanada, and under both Canadian and U.S. GAAP the dividends on the
preferred shares have been reflected as non-controlling interest charges in
determining the consolidated net income of TransCanada.
(2) Under the provisions of Statement of Financial Accounting Standards (SFAS)
No. 133 "Accounting for Derivatives and Hedging Activities", all
derivatives are recognized as assets and liabilities on the balance sheet
and measured at fair value. For derivatives designated as fair value
hedges, changes in the fair value are recognized in earnings together with
an equal or lesser amount of changes in the fair value of the hedged item
attributable to the hedged risk. For derivatives designated as cash flow
hedges, changes in the fair value of the derivatives that are effective in
offsetting the hedged risk are recognized in other comprehensive income
until the hedged item is recognized in earnings. Any ineffective portion of
the change in fair value is recognized in earnings each period.
Page 2 of 9
(3) Under U.S. GAAP, energy trading contracts are measured at fair value
determined as at the balance sheet date. In 2002, TransCanada adopted the
transitional provisions of FASB Emerging Issues Task Force (EITF) 02-3,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities" whereby the Company is netting all revenues and expenses
related to derivative energy trading contracts. This accounting change was
applied retroactively with reclassification of prior periods. Effective
January 1, 2003, the Company fully adopted EITF 02-3. Certain of the energy
trading derivatives are accounted for as hedges under Canadian GAAP but not
under U.S. GAAP. These derivatives as well as other derivatives held for
trading purposes are measured at fair value and accounted for under the
provisions of SFAS No. 133. The Company's energy trading contracts that are
not derivatives are not subject to mark-to-market accounting. This
accounting change was effected through a cumulative adjustment in the
current period income with no restatement of prior periods.
(4) Under Canadian GAAP, pre-operating costs incurred during the commissioning
phase of a new project are deferred until commercial production levels are
achieved. After such time, those costs are amortized over the estimated
life of the project. Under U.S. GAAP, such costs are expensed as incurred.
Certain start-up costs incurred by Bruce Power L.P. (an equity investment)
are required to be expensed under U.S. GAAP.
CONDENSED STATEMENT OF CONSOLIDATED INCOME IN ACCORDANCE WITH U.S. GAAP(6)
NINE MONTHS ENDED SEPTEMBER 30 (MILLIONS OF DOLLARS) 2003 2002
- ---------------------------------------------------- ------ ------
Revenues(3) 3,692 3,475
------ ------
Cost of sales(3) 465 402
Other costs and expenses 1,239 1,122
Depreciation 610 544
------ ------
2,314 2,068
------ ------
Operating income 1,378 1,407
Other (income)/expenses
Equity income(2)(4)(6) (285) (199)
Other expenses(1)(2)(5) 647 650
Income taxes 411 378
------ ------
773 829
------ ------
Income from continuing operations in accordance with U.S. GAAP 605 578
Net income from discontinued operations in accordance with U.S. GAAP 50 --
------ ------
Income before cumulative effect of the application of EITF 02-3 in accordance
with U.S. GAAP 655 578
Cumulative effect of the application of EITF 02-3, net of tax(3) (13) --
------ ------
Net income in accordance with U.S. GAAP 642 578
------ ------
------ ------
Page 3 of 9
COMPREHENSIVE INCOME IN ACCORDANCE WITH U.S. GAAP
NINE MONTHS ENDED SEPTEMBER 30 (MILLIONS OF DOLLARS) 2003 2002
- ---------------------------------------------------- ---- ----
Net income in accordance with U.S. GAAP 642 578
Adjustments affecting comprehensive income under U.S. GAAP
Additional minimum liability for employee future benefits
(SFAS No. 87)(12) 14 -
Tax impact of additional minimum liability for employee future benefits (5) -
Unrealized gain/(loss) on derivatives(2) 17 (4)
Tax impact of gain/(loss) on derivatives (3) -
Foreign currency translation adjustment (43) 1
---- ----
Comprehensive income in accordance with U.S. GAAP 622 575
---- ----
---- ----
Page 4 of 9
CONDENSED BALANCE SHEET IN ACCORDANCE WITH U.S. GAAP(6)
SEPTEMBER 30, December 31,
(MILLIONS OF DOLLARS) 2003 2002
- --------------------- ------------- ------------
Current assets 1,032 1,074
Long-term energy trading assets(3) - 218
Long-term investments(4)(7) 1,838 1,629
Plant, property and equipment(8) 15,370 14,992
Regulatory asset(9) 2,659 2,578
Other assets(2) 1,291 893
------ ------
22,190 21,384
------ ------
------ ------
Current liabilities(10) 2,069 1,918
Provision for loss on discontinued operations 169 234
Long-term energy trading liabilities(3) - 41
Deferred amounts(7)(8) 640 593
Long-term debt(2) 9,314 8,963
Deferred income taxes(9) 2,989 2,692
Preferred securities(11) 694 694
Trust originated preferred securities - 218
Non-controlling interest 389 389
Shareholders' equity 5,926 5,642
------ ------
22,190 21,384
------ ------
------ ------
STATEMENT OF OTHER COMPREHENSIVE INCOME IN ACCORDANCE WITH U.S. GAAP
Cumulative Minimum Cash Flow
Translation Pension Liability Hedges
(MILLIONS OF DOLLARS) Account (SFAS No. 87) (SFAS No. 133) Total
- --------------------- ------- ------------- -------------- -----
Balance at January 1, 2002 13 (56) (9) (52)
Unrealized loss on derivatives, net of tax(2) -- -- (4) (4)
Foreign currency translation adjustment 1 -- -- 1
---- ---- ---- ----
Balance at September 30, 2002 14 (56) (13) (55)
Changes during the period September 30 to
December 31, 2002(12) -- (40) -- (40)
---- ---- ---- ----
Balance at December 31, 2002 14 (96) (13) (95)
ADDITIONAL MINIMUM LIABILITY FOR EMPLOYEE FUTURE
BENEFITS, NET OF TAX(12) -- 9 -- 9
UNREALIZED GAIN ON DERIVATIVES, NET OF TAX(2) -- -- 14 14
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (43) -- -- (43)
---- ---- ---- ----
BALANCE AT SEPTEMBER 30, 2003 (29) (87) 1 (115)
---- ---- ---- ----
---- ---- ---- ----
Page 5 of 9
(5) Other expenses included an allowance for funds used during construction of
$1 million for the nine months ended September 30, 2003 (September 30, 2002
- $4 million).
(6) In accordance with U.S. GAAP, the condensed Statement of Consolidated
Income and Balance Sheet are prepared using the equity method of accounting
for joint ventures. Excluding the impact of other U.S. GAAP adjustments,
the use of the proportionate consolidation method of accounting for joint
ventures, as required under Canadian GAAP, results in the same net income
and Shareholders' Equity.
Page 6 of 9
(7) Effective January 1, 2003, the Company adopted the provisions of Financial
Interpretation (FIN) 45 that require the recognition of a liability for the
fair value of certain guarantees that require payments contingent on
specified types of future events. The measurement standards of FIN 45 are
applicable to guarantees entered into after January 1, 2003. For U.S. GAAP,
the Company has recorded the fair value of the guarantees ($4 million)
arising on the acquisition of the interest in Bruce Power L.P. as a
liability and an increase in the cost of the investment.
(8) Effective January 1, 2003, the Company adopted the provisions of SFAS No.
143 "Accounting for Asset Retirement Obligations", which addresses
financial accounting and reporting for obligations associated with asset
retirement costs. SFAS No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it
is incurred if a reasonable estimate of fair value can be made. The fair
value is added to the carrying amount of the associated asset. The
liability is accreted at the end of each period through charges to
operating expenses.
The property, plant and equipment of the regulated natural gas transmission
operations consist primarily of underground pipelines and above ground
compression equipment and other facilities. No amount has been recorded for
asset retirement obligations relating to these assets as it is not possible
to make a reasonable estimate of the fair value of the liability due to the
indeterminate timing and scope of the asset retirements. Management
believes that all retirement costs associated with the regulated pipelines
will be recovered through tolls in future periods.
The property, plant and equipment in the power business consists primarily
of power plants in Canada and the United States. The estimated fair value
of the liability for the power plants and associated assets as at January
1, 2003 was $6 million. The asset retirement cost, net of accumulated
depreciation that would have been recorded if the cost had been recorded in
the period in which it arose, is recorded as an additional cost of the
assets as at January 1, 2003. There were no material changes in the
estimated fair value of the liability during the nine months ended
September 30, 2003. The Company has no legal liability for asset retirement
obligations with respect to its investment in Bruce Power L.P. and the
Sundance A and B power purchase arrangements.
(9) Under U.S. GAAP, the Company is required to record a deferred income tax
liability for its cost-of-service regulated businesses. As these deferred
income taxes are recoverable through future revenues, a corresponding
regulatory asset is recorded for U.S. GAAP purposes.
(10) Current liabilities at September 30, 2003 include dividends payable of $136
million (December 31, 2002 - $125 million) and current taxes payable of
$181 million (December 31, 2002 - $150 million).
(11) The fair value of the preferred securities at September 30, 2003 was $626
million (December 31, 2002 - $743 million). The Company made preferred
securities charges payments of $42 million for the nine months ended
September 30, 2003 (September 30, 2002 - $43 million).
Page 7 of 9
(12) Under U.S. GAAP, a net loss recognized pursuant to SFAS No. 87 "Employers'
Accounting for Pensions" as an additional pension liability not yet
recognized as net period pension cost, must be recorded as a component of
comprehensive income.
STOCK-BASED COMPENSATION
Under the transition rules provided by SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123", the Company is expensing stock options granted in 2002 and 2003. The use
of the fair value method of SFAS No. 123 "Accounting for Stock-Based
Compensation" for previously issued options would have resulted in net income
under U.S. GAAP of $641 million for the nine months ended September 30, 2003
(September 30, 2002 - $576 million) and net income per share (basic) of $1.33
for the nine months ended September 30, 2003 (September 30, 2002 - $1.20 per
share).
Page 8 of 9
SUMMARIZED FINANCIAL INFORMATION OF LONG-TERM INVESTMENTS(13)
NINE MONTHS ENDED SEPTEMBER 30 (MILLIONS OF DOLLARS) 2003 2002
- ---------------------------------------------------- ------------ ------------
INCOME
Revenues 806 588
Other costs and expenses (371) (196)
Depreciation (113) (106)
Financial charges and other (34) (84)
------------ ------------
Proportionate share of income before income taxes of long-term investments 288 202
------------ ------------
------------ ------------
SEPTEMBER 30, December 31,
(MILLIONS OF DOLLARS) 2003 2002
- --------------------- ----------------- --------------
BALANCE SHEET
Current assets 407 246
Plant, property and equipment 3,189 3,197
Other assets (net) - 112
Current liabilities (181) (216)
Deferred amounts (net) (282) -
Non-recourse debt (1,281) (1,646)
Deferred income taxes (14) (64)
----------------- --------------
Proportionate share of net assets of long-term investments 1,838 1,629
----------------- --------------
----------------- --------------
(13) This includes those investments that are accounted for by the equity method
under U.S. GAAP (including those that are accounted for by the
proportionate consolidation method under Canadian GAAP).
Page 9 of 9
EXHIBIT 4
CERTIFICATIONS
I, Harold N. Kvisle, certify that:
1. I have reviewed this quarterly report on Form 6-K of TransCanada
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Harold N. Kvisle
-------------------------------------
Dated October 27, 2003 Harold N. Kvisle
President and Chief Executive Officer
EXHIBIT 5
CERTIFICATIONS
I, Russell K. Girling, certify that:
1. I have reviewed this quarterly report on Form 6-K of TransCanada
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Russell K. Girling
-------------------------
Dated October 27, 2003 Russell K. Girling
Executive Vice-President, Corporate Development and
Chief Financial Officer
EXHIBIT 6
TRANSCANADA CORPORATION
450 - 1st Street S.W.
Calgary, Alberta, Canada
T2P 5H1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL STATEMENTS
I, Harold N. Kvisle, the Chief Executive Officer of TransCanada Corporation (the
"Company"), in compliance with 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify, in connection
with the Company's Quarterly Report as filed on Form 6-K for the period ended
September 30, 2003 with the Securities and Exchange Commission (the "Report"),
that:
1. the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Harold N. Kvisle
---------------------------
Harold N. Kvisle
Chief Executive Officer
October 27, 2003
EXHIBIT 7
TRANSCANADA CORPORATION
450 - 1st Street S.W.
Calgary, Alberta, Canada
T2P 5H1
CERTIFICATION OF CHIEF FINANCIAL OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL STATEMENTS
I, Russell K. Girling, the Chief Financial Officer of TransCanada Corporation
(the "Company"), in compliance with 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify, in connection
with the Company's Quarterly Report as filed on Form 6-K for the period ended
September 30, 2003 with the Securities and Exchange Commission (the "Report"),
that:
1. the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Russell K. Girling
---------------------------
Russell K. Girling
Chief Financial Officer
October 27, 2003
EXHIBIT 8
[LOGO]
TRANSCANADA CORPORATION
- --------------------------------------------------------------------------------
Media Inquiries: Glenn Herchak/Hejdi Feick (403) 920-7877
Analyst Inquiries: David Moneta/Debbie Stein (403) 920-7911
NEWS RELEASE
TransCanada Delivers Solid Third Quarter Financial Performance
Board declares quarterly dividend of $0.27 per share
CALGARY, Alberta - October 28, 2003 - (TSE: TRP) (NYSE: TRP)
THIRD QUARTER AND YEAR-TO-DATE 2003 FINANCIAL HIGHLIGHTS
(All financial figures are in Canadian dollars unless noted otherwise)
o TransCanada Corporation's net income for the third quarter was $248 million
or $0.51 per share. This includes net income from discontinued operations
which reflects the income recognition of $50 million or $0.10 per share of
the initially deferred gain of approximately $100 million after tax
relating to the 2001 disposition of the company's Gas Marketing business.
o Net income from continuing operations for the third quarter 2003 was $198
million or $0.41 per share, an increase of $23 million or $0.04 per share
compared to $175 million or $0.37 per share for the third quarter 2002. All
segments of the company contributed to the 13 per cent increase.
o TransCanada's net income for the nine months ended September 30, 2003 was
$658 million or $1.36 per share, after reflecting the net income from
discontinued operations of $50 million or $0.10 per share. Net income for
the same period last year was $567 million or $1.19 per share.
o Net income from continuing operations for the nine months ended September
30, 2003 was $608 million or $1.26 per share, an increase of $41 million,
or $0.07 per share, over net earnings of $567 million or $1.19 per share in
the first nine months of 2002.
o Funds generated from continuing operations for the third quarter 2003 were
$516 million, an increase of more than 10 per cent compared to the third
quarter 2002.
o Year-to-date, funds generated from continuing operations were $1,407
million, compared to $1,360 million for the first nine months of 2002.
o TransCanada's Board of Directors today declared a quarterly dividend of
$0.27 per share for the quarter ending December 31, 2003 on the outstanding
common shares. This is the 160th consecutive quarterly dividend on the
common shares paid by TransCanada and its subsidiary. It is payable on
January 30, 2004 to shareholders of record at the close of business on
December 31, 2003.
"In the third quarter, we continued to make progress on our key strategies,
including growing our core businesses, driving for operational excellence,
and maintaining and utilizing our financial strength," said Hal Kvisle,
TransCanada's chief executive officer. "Our strong cash flow, earnings and
balance sheet position us well to continue to enhance shareholder value."
THIRD QUARTER 2003 DEVELOPMENTS
NATURAL GAS TRANSMISSION
FOOTHILLS ACQUISITION COMPLETED
In August, TransCanada completed its purchase of the remaining interests of
Foothills Pipe Lines Ltd. (Foothills) and its subsidiaries from Duke Energy Gas
Transmission (Duke) for $259 million, including assumption of $154 million of
Duke's proportionate share of Foothills' corporate debt. As a result,
TransCanada now owns 100 per cent of Foothills and its subsidiaries.
INCREASED OWNERSHIP INTEREST IN PORTLAND NATURAL GAS
In September, TransCanada increased its ownership interest in Portland Natural
Gas Transmission System (PNGTS) by more than 10 per cent to 43.42 per cent.
TransCanada acquired a portion of DTE East Coast Pipeline Company's interest in
PNGTS for approximately
US$47.1 million, including assumed debt of approximately US$27.8 million. The
transaction closed on September 29, 2003.
In October, TransCanada announced an agreement to acquire El Paso Corporation's
(El Paso) 29.64 per cent interest in PNGTS for approximately US$137.2 million,
including assumed debt of approximately US$80.7 million. The closing of the
transaction is expected to be completed by the end of this year and is subject
to the satisfaction of various closing conditions including the right of first
offer provisions.
Under the terms of the PNGTS partnership agreement, the other PNGTS partner, Gaz
Metropolitain and Company, Limited Partnership (Gaz Metropolitain), has the
right to acquire its pro rata share of El Paso's offered interest. This right is
exercisable for a period of thirty days after receipt of formal notice from El
Paso. Should this right of first offer not be exercised, TransCanada's interest
in Portland will increase to 73.06 per cent from 43.42 per cent. Should Gaz
Metropolitain's right of first offer be exercised, TransCanada's total interest
will increase to 61.71 per cent. The purchase price paid by TransCanada would be
reduced proportionately.
PNGTS operates a 471 kilometre, 220 million cubic feet per day interstate
natural gas pipeline which connects with the Trans Quebec & Maritimes Pipeline
(50 per cent owned by TransCanada) near Pittsburg, New Hampshire.
FAIRWINDS LNG PROJECT
In September, TransCanada, along with ConocoPhillips Company, presented plans to
evaluate a site in the northeast U.S. for the development of a liquefied natural
gas (LNG) regasification facility. The companies' "Fairwinds" partnership has
asked the residents of the Town of Harpswell, located approximately 15 miles
northeast of Portland, Maine to vote on leasing a site owned by the Town for an
LNG facility. The vote is scheduled for January 20, 2004.
"Gas demand in North America is expected to exceed traditional supply by the end
of the decade and alternative supplies, including Northern gas and LNG imports
are going to be needed by the market," said Mr. Kvisle. "We expect to play a
role in fulfilling that need. We have the financial means to participate, we
know the North American natural gas market and we have the pipeline assets,
experience and capacity necessary to move the LNG, once regasified, to market."
If leasing of the site is approved by the residents of Harpswell and the
necessary regulatory approvals are subsequently received, construction of the
LNG facility could begin in 2006 with the
facility becoming operational in 2009. Natural gas from the LNG facility would
be delivered through a new pipeline that would connect with an existing pipeline
in Maine.
POWER GENERATION
On October 24, 2003, TransCanada and Grandview Cogeneration Corporation, an
affiliate of Irving Oil Limited (Irving), announced an agreement to build a 90
megawatt natural gas-fired cogeneration power plant on the site of the Irving
Oil Refinery in Saint John, New Brunswick at an estimated capital cost of
approximately $85 million.
The Grandview cogeneration facility will be developed and owned by
TransCanada. Under a 20-year tolling arrangement, Irving will provide fuel for
the plant and contract for 100 per cent of the plant's heat and electricity
output. Pending regulatory approvals, construction of the plant will begin in
November 2003, with an expected in-service date at the end of 2004.
REGULATORY DEVELOPMENTS
NEB 2003 MAINLINE TOLLS DECISION
In July, TransCanada received the National Energy Board's (NEB's) decision on
TransCanada PipeLines Limited's 2003 Mainline Tolls application. In its
decision, the NEB approved key components of the application including: an
increase in the bid floor price for Interruptible Transportation Service; an
increase in the composite depreciation rate from 2.89 per cent to 3.42 per cent;
continuation of the Fuel Gas Incentive Program; and the introduction of a new
tolling zone in southwestern Ontario.
"We are encouraged by the NEB's recognition of our need to manage the long-term
risks of the Canadian Mainline," said Mr. Kvisle. "This decision is an essential
step towards ensuring the long-term sustainability of the Mainline, to the
benefit of all stakeholders."
The rates included in this decision are considered interim pending the
disposition of TransCanada's appeal to the Federal Court of Appeal regarding the
NEB's Review and Variance (RH-R-1-2002) decision.
EUB ALBERTA SYSTEM 2004 GENERAL RATE APPLICATION AND GENERIC COST OF CAPITAL
PROCEEDING
In July, TransCanada, along with other utilities, filed evidence in the Alberta
Energy and Utilities Board's (EUB's) Generic Cost of Capital Proceeding. In its
application for the Alberta System, TransCanada has requested a return on common
equity of 11 per cent
with a deemed common equity component of 40 per cent. The EUB's hearing is set
to begin in November 2003. The EUB expects to adopt a standardized approach to
determining the rate of return and capital structure for all utilities under its
jurisdiction.
On September 30, 2003, TransCanada filed Phase One of the Alberta System's 2004
General Rate Application (GRA) with the EUB. With this application, TransCanada
is seeking approval of the Alberta System's rate base and revenue requirement
for 2004. The EUB hearing of the 2004 GRA is set to commence March 16, 2004.
POWER BLACKOUT
The power blackout across Ontario and the northeastern United States on August
14, 2003 created unplanned outages for some of TransCanada's power plants. Most
facilities were brought back on-line within hours. Natural gas continued to flow
through TransCanada's pipeline system with some compressor stations operating on
auxiliary power. The blackout did not have a material impact on the company's
net earnings.
"The employees of our Ontario and northeastern U.S. power plants and gas
facilities worked very hard under extraordinary circumstances to cope with the
blackout and to work cooperatively with regulators to get the power back on for
many people," said Mr. Kvisle. "Thanks to their efforts, our pipeline and power
facilities performed exceptionally well during the power outage."
TELECONFERENCE - 1:00 P.M. (MOUNTAIN)/3:00 P.M. (EASTERN)
TransCanada will hold a teleconference today at 1:00 p.m. (Mountain) / 3:00 p.m.
(Eastern) to discuss the third 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, November
4, 2003, by dialing 1-800-408-3053 or 416-695-5800 (Toronto area) and entering
passcode 1487808.
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 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 wholly-owned
pipeline transports the majority of Western Canada's natural gas production to
the fastest growing markets in Canada and the United States. TransCanada owns,
controls or is constructing nearly 4,700 megawatts of power - an equal amount
of power can meet the needs of about 4.7 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.
THIRD QUARTER 2003 FINANCIAL HIGHLIGHTS
(unaudited)
OPERATING RESULTS Three months ended September 30 Nine months ended September 30
(millions of dollars) 2003 2002 2003 2002
- -------------------------------------------------------------------------------- ---------------- --------------- ---------------
Revenues 1,391 1,285 4,038 3,876
----- ----- ----- -----
NET INCOME
Continuing operations 198 175 608 567
Discontinued operations 50 - 50 -
----- ----- ----- -----
248 175 658 567
----- ----- ----- -----
----- ----- ----- -----
CASH FLOW
Funds generated from continuing operations 516 467 1,407 1,360
Capital expenditures 81 182 264 397
Acquisitions, net of cash acquired 135 19 547 19
Three months ended September 30 Nine months ended September 30
COMMON SHARE STATISTICS 2003 2002 2003 2002
- -------------------------------------------------------------------------------- ---------------- --------------- ---------------
NET INCOME PER SHARE - BASIC
Continuing Operations $0.41 $0.37 $1.26 $1.19
Discontinued Operations 0.10 - 0.10 -
----- ----- ----- -----
$0.51 $0.37 $1.36 $1.19
----- ----- ----- -----
----- ----- ----- -----
DIVIDEND PER SHARE $0.27 $0.25 $0.81 $0.75
COMMON SHARES OUTSTANDING (millions)
Average for the period 482.1 478.9 481.1 478.0
End of period 482.4 479.1 482.4 479.1
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