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 January 2004
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
----- -----
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
----- -----
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.
---- ----------------
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 December 31,
2003.
2 Consolidated comparative interim unaudited financial statements of the
registrant for the twelve month period ended December 31, 2003 (included
in the registrant's Fourth 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
Fourth Quarter 2003 Quarterly Report to Shareholders.
II
A copy of the Registrant's news release of January 27, 2004 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
January 28, 2004
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 December 31,
2003.
2 Consolidated comparative interim unaudited financial statements of the
registrant for the twelve month period ended December 31, 2003 (included
in the registrant's Fourth 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 Fourth
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 January 27, 2004.
EXHIBIT 1
[TRANSCANADA LOGO]
TRANSCANADA CORPORATION
- -------------------------------------------------------------------------------
FOURTH QUARTER 2003
Q u a r t e r l y R e p o r t t o
S h a r e h o l d e r s
CONSOLIDATED RESULTS-AT-A-GLANCE
(unaudited) Three months ended December 31 Year ended December 31
(millions of dollars except per share amounts) 2003 2002 2003 2002
- ------------------------------------------------------------------- ----------------- --------------- --------------
NET INCOME
Continuing operations 193 180 801 747
Discontinued operations - - 50 -
---------------- ----------------- --------------- --------------
193 180 851 747
================ ================= =============== ==============
NET INCOME PER SHARE - BASIC
Continuing operations $0.40 $0.37 $1.66 $1.56
Discontinued operations - - 0.10 -
---------------- ----------------- --------------- --------------
$0.40 $0.37 $1.76 $1.56
================ ================= =============== ==============
MANAGEMENT'S DISCUSSION AND ANALYSIS
On January 27, 2004, the Board of Directors of TransCanada Corporation
(TransCanada or the company) raised the quarterly dividend on the company's
common shares from $0.27 per share to $0.29 per share, an increase of seven
per cent, for the quarter ending March 31, 2004.
The following discussion and analysis should be read in conjunction with the
accompanying unaudited consolidated financial statements of TransCanada
for the year ended December 31, 2003 and the notes thereto.
RESULTS OF OPERATIONS
CONSOLIDATED
TransCanada's net income from continuing operations (net earnings) and net
income for fourth quarter 2003 were $193 million or $0.40 per share compared to
$180 million or $0.37 per share for fourth quarter 2002. The increase of $13
million or $0.03 per share was primarily due to higher earnings from the Power
business. Higher net earnings from the Power business included $7 million after
tax from TransCanada's investment in Bruce Power L.P. (Bruce Power) and lower
general, administrative and support costs.
TransCanada's net income for the year ended December 31, 2003 was $851 million
or $1.76 per share compared to $747 million or $1.56 per share for the
comparable period in 2002. Included in 2003 was net income from discontinued
operations of $50 million or $0.10 per share reflecting the third quarter 2003
income recognition of a portion of the initially deferred gain of approximately
$100 million after tax relating to the 2001 disposition of the company's Gas
Marketing business.
FOURTH QUARTER REPORT 2003
TRANSCANADA [2
TransCanada's net earnings for the year ended December 31, 2003 were $801
million or $1.66 per share compared to $747 million or $1.56 per share for the
comparable period in 2002. The increase of $54 million or $0.10 per share in
2003 compared to 2002 was primarily due to higher net earnings of $74 million
from the Power business and lower net expenses in the Corporate segment,
partially offset by lower net earnings from the Gas Transmission business.
Net earnings from the Power business for the year ended December 31, 2003
included $73 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 were partially offset by reduced operating and other
income from the Northeastern U.S. Operations, combined with higher general,
administrative and support costs.
The $11 million decrease in 2003 net expenses in the Corporate segment was
primarily due to the positive impacts of a weaker U.S. dollar in 2003
compared to 2002.
The lower net earnings of $31 million in the Gas Transmission business for
the year ended December 31, 2003 compared to 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 year ended December 31, 2002 included after-tax income of $16
million representing the impact of the Fair Return decision for 2001. The
2003 results for the Gas Transmission segment included TransCanada's $11
million share of future income tax benefits recognized by TransGas de
Occidente (TransGas) while the 2002 results included TransCanada's $7 million
share of a favourable ruling for Great Lakes related to Minnesota use tax
paid in prior years.
SEGMENT RESULTS-AT-A-GLANCE
(unaudited) Three months ended December 31 Year ended December 31
(millions of dollars) 2003 2002 2003 2002
- ------------------------------------------------------------------- ----------------- -------------- --------------
Gas Transmission 160 162 622 653
Power 44 30 220 146
Corporate (11) (12) (41) (52)
----------------- ----------------- -------------- --------------
Continuing operations 193 180 801 747
Discontinued operations - - 50 -
----------------- ----------------- -------------- --------------
NET INCOME 193 180 851 747
================= ================= ============== ==============
Funds generated from continuing operations of $403 million for fourth quarter
2003 decreased $64 million compared to fourth quarter 2002. Funds generated from
continuing operations of $1,810 million for the year ended December 31, 2003
decreased $17 million compared to last year.
GAS TRANSMISSION
The Gas Transmission business generated net earnings of $160 million and $622
million for the quarter and year ended December 31, 2003, respectively, compared
to $162 million and $653 million for the same periods in 2002.
FOURTH QUARTER REPORT 2003
TRANSCANADA [3
GAS TRANSMISSION RESULTS-AT-A-GLANCE
(unaudited) Three months ended December 31 Year ended December 31
(millions of dollars) 2003 2002 2003 2002
- -------------------------------------------------------------------- ----------------- --------------- --------------
WHOLLY-OWNED PIPELINES
Alberta System 54 56 190 214
Canadian Mainline 75 75 290 307
Foothills* 6 4 20 17
BC System 2 2 6 6
---------------- ----------------- --------------- --------------
137 137 506 544
---------------- ----------------- --------------- --------------
OTHER GAS TRANSMISSION
Great Lakes 14 17 52 66
Iroquois 3 3 18 18
TC PipeLines, LP 4 5 15 17
Portland** 4 - 11 2
Ventures LP 3 2 10 7
Trans Quebec & Maritimes 2 2 8 8
CrossAlta 2 4 6 13
TransGas de Occidente 2 1 22 6
Northern Development (2) (1) (4) (6)
General, administrative, support and other (9) (8) (22) (22)
---------------- ----------------- --------------- --------------
23 25 116 109
---------------- ----------------- --------------- --------------
Net earnings 160 162 622 653
================ ================= =============== ==============
* The remaining ownership interests in Foothills, previously not held by
TransCanada, were acquired on August 15, 2003.
** TransCanada increased its ownership interest in Portland from 33.3 per cent
to 43.4 per cent on September 29, 2003 and from 43.4 per cent to 61.7 per
cent on December 3, 2003.
WHOLLY-OWNED PIPELINES
The Alberta System's net earnings of $54 million in fourth quarter 2003
decreased $2 million compared to $56 million in the same quarter of 2002. Net
earnings for the year ended December 31, 2003 decreased $24 million compared to
the prior year. This 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. As discussed in the third quarter 2003
Quarterly Report to Shareholders, the lower negotiated 2003 revenue requirement
was expected to reduce 2003 earnings by approximately $30 million relative to
2002 earnings of $214 million. However, lower financing and operating costs
partially offset the previously anticipated reduction in earnings.
The Canadian Mainline's fourth quarter net earnings of $75 million are
consistent with net earnings in the same quarter of 2002. The
FOURTH QUARTER REPORT 2003
TRANSCANADA [4
2003 net earnings of $290 million are $17 million lower than 2002 net earnings
due to the impact of the NEB's Fair Return decision in 2002. This decision
included an increase in the deemed common equity ratio from 30 to 33 per cent
effective January 1, 2001 and resulted in additional net earnings of $16 million
for the year ended December 31, 2001, recognized in June 2002. The impact of a
lower average investment base was substantially offset by an increase in the
approved rate of return on common equity from 9.53 per cent in 2002 to 9.79 per
cent in 2003.
In December 2002, the NEB approved TransCanada's application to charge interim
tolls for transportation service, effective January 1, 2003. In August 2003,
subsequent to the NEB's decision on the 2003 Tolls and Tariff Application, it
approved interim tolls that the company charged from September 1, 2003 to
December 31, 2003. The NEB ordered that tolls will remain interim pending a
decision from the Federal Court of Appeal on TransCanada's appeal of the NEB's
decision on TransCanada's Fair Return Review and Variance Application, which is
expected to be heard commencing February 16, 2004.
OPERATING STATISTICS
Year ended December 31 Alberta Canadian BC
(unaudited) System* Mainline** Foothills*** System
- --------------------------------------- ------------------- ------------------- ----------------- ------------------
2003 2002 2003 2002 2003 2002 2003 2002
------------------- ------------------- ----------------- ------------------
Average investment base ($ millions) 4,878 5,074 8,565 8,884 739 *** 236 211
Delivery volumes (Bcf)
Total 3,883 4,146 2,628 2,630 1,110 *** 325 371
Average per day 10.6 11.4 7.2 7.2 3.0 *** 0.9 1.0
- ----------------------------------------------------------------------------------------------------------------------
* Field receipt volumes for the Alberta System for the year ended December
31, 2003 were 3,892 Bcf (2002 - 4,101 Bcf); average per day was 10.7 Bcf
(2002 - 11.2 Bcf).
** Canadian Mainline deliveries originating at the Alberta border and in
Saskatchewan for the year ended December 31, 2003 were 2,055 Bcf (2002 -
2,221 Bcf); average per day was 5.6 Bcf (2002 - 6.1 Bcf).
*** The remaining interests in Foothills were acquired in August 2003. The
annual 2003 delivery volumes in the table represent 100 per cent of
Foothills.
OTHER GAS TRANSMISSION
TransCanada's proportionate share of net earnings from Other Gas Transmission
was $23 million and $116 million for the quarter and year ended December 31,
2003, respectively.
Net earnings for fourth quarter 2003 were slightly lower than the same
quarter in 2002. Higher contributions from Portland, Ventures LP and TransGas
were more than offset by lower earnings from CrossAlta, higher project
development costs, and the impact of a weaker U.S. dollar.
FOURTH QUARTER REPORT 2003
TRANSCANADA [5
The 2002 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 2003 increased $14
million compared to 2002. Earnings from TransGas were $16 million higher as a
result of higher contractual tolls and the recognition of future tax benefits in
2003. TransCanada's share of Portland's net earnings in 2003 has increased $9
million compared to last year primarily due to the impacts of a rate settlement
in early 2003 and TransCanada's increased ownership interest in 2003. These
increases were partially offset by a weaker U.S. dollar and lower earnings from
CrossAlta due to reduced storage margins as a result of unfavourable market
conditions.
On December 3, 2003, TransCanada increased its ownership interest in Portland
Natural Gas Transmission System Partnership (Portland) from 43.4 per cent to
61.7 per cent. The company acquired the additional interest from El Paso
Corporation for US$82 million, including US$50 million of assumed debt.
POWER
POWER RESULTS-AT-A-GLANCE
(unaudited) Three months ended December 31 Year ended December 31
(millions of dollars) 2003 2002 2003 2002
- ----------------------------------------------------------------------- --------------- -------------- ---------------
Western operations 31 30 160 131
Northeastern U.S. operations 36 35 127 149
Bruce Power L.P. investment 7 - 99 -
Power LP investment 9 9 35 36
General, administrative and support costs (20) (25) (86) (73)
---------------- --------------- -------------- ---------------
Operating and other income 63 49 335 243
Financial charges (4) (4) (12) (13)
Income taxes (15) (15) (103) (84)
---------------- --------------- -------------- ---------------
Net earnings 44 30 220 146
================ =============== ============== ===============
Power's net earnings in fourth quarter 2003 of $44 million increased $14 million
compared to $30 million in fourth quarter 2002. Earnings from the February 2003
acquisition of the 31.6 per cent interest in Bruce Power and reduced general,
administrative and support costs were the primary reasons for the increase.
Net earnings for the year ended December 31, 2003 of $220 million were $74
million higher compared to the prior year. Bruce Power earnings, a second
quarter 2003 settlement 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
FOURTH QUARTER REPORT 2003
TRANSCANADA [6
the increase were lower earnings from the Northeastern U.S. Operations and
higher general, administrative and support costs.
WESTERN OPERATIONS
Operating and other income for fourth quarter 2003 in Western Operations of $31
million was comparable to fourth quarter 2002. Higher contributions from the
Sundance power purchase arrangements reflecting lower transmission costs were
partially offset by the unfavourable effects in fourth quarter 2003 of lower
prices achieved on the overall sale of power.
Operating and other income for the year ended December 31, 2003 in Western
Operations of $160 million was $29 million higher compared to the prior year,
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. A full year of earnings from
the ManChief plant, acquired in late 2002, and higher contributions from the
Sundance power purchase arrangements reflecting lower transmission costs 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 the higher cost of natural gas fuel at the carbon black facility.
NORTHEASTERN U.S. OPERATIONS
Operating and other income for fourth quarter 2003 in Northeastern U.S.
Operations of $36 million increased marginally compared to fourth quarter 2002.
Increased water flows through the Curtis Palmer hydroelectric facility and
earnings from the Cobourg temporary generation facility were partially offset by
the unfavourable impact of a weaker U.S. dollar and higher natural gas fuel cost
at Ocean State Power (OSP) resulting from an arbitration process.
Operating and other income for the year ended December 31, 2003 in Northeastern
U.S. Operations of $127 million decreased $22 million compared to 2002 primarily
due to the impact of higher operating costs at OSP and the unfavourable impact
of a weaker U.S. dollar. Partially offsetting these decreases were incremental
earnings from the growth in volumes and margins in the Northeastern U.S. retail
business with large commercial and industrial customers. The long-term gas
supply for OSP is subject to a yearly price renegotiation, taking effect after
the tenth year of the contract. If OSP and the suppliers are unable to reach an
agreement on price in a given year, the matter is settled by arbitration. OSP is
currently in arbitration with its natural gas fuel suppliers regarding changes
to the pricing of its fuel supply.
FOURTH QUARTER REPORT 2003
TRANSCANADA [7
BRUCE POWER L.P. INVESTMENT
BRUCE POWER RESULTS-AT-A-GLANCE
(unaudited) Three months ended Year ended
(millions of dollars) December 31, 2003 December 31, 2003
- ------------------------------------------------------------------------------------------------ ---------------------
BRUCE POWER (100 per cent basis)
Revenues 269 1,208
Operating expenses 254 853
----------------------- ---------------------
Operating income 15 355
Financial charges 20 69
----------------------- ---------------------
(Loss)/Income before income taxes (5) 286
======================= =====================
TransCanada's interest in Bruce Power (loss)/income before income taxes* (1) 65
Adjustments** 8 34
----------------------- ---------------------
TransCanada's income from Bruce Power before income taxes 7 99
======================= =====================
* TransCanada acquired its interest in Bruce Power on February 14, 2003.
Bruce Power's 100 per cent income before income taxes from February 14,
2003 to December 31, 2003 was $205 million.
** See Note 8 to the December 31, 2003 financial statements for an explanation
of the amounts included in Adjustments.
Bruce Power contributed $7 million of pre-tax equity income in fourth quarter
2003 compared to $38 million in third quarter 2003. The decrease reflected lower
power output and higher maintenance costs compared to third quarter 2003,
primarily due to a maintenance outage at one of the Bruce B units for the entire
fourth quarter 2003. Overall prices achieved during fourth quarter 2003 were
approximately $45 per megawatt hour (MWh) which is consistent with third quarter
2003. The average price achieved for the year ended December 31, 2003 was
approximately $48 per MWh. Approximately 30 per cent of the output was sold into
Ontario's wholesale spot market in fourth quarter 2003 with the remainder being
sold under longer term contracts. TransCanada's share of power output for fourth
quarter 2003 from four Bruce B units and one Bruce A unit was 1,846 gigawatt
hours (GWh) compared to 2,041 GWh in third quarter 2003. This includes power
output from Bruce A Unit 4 from November 1, 2003 to December 31, 2003 of
approximately 275 GWh. Bruce A Unit 4 began producing electricity to the Ontario
electricity grid on October 7, 2003 and was considered commercially in-service
November 1, 2003. Bruce B Unit 8 was offline for the entire fourth quarter for
maintenance. As well, Bruce B Unit 7 incurred a week long forced outage in the
fourth quarter. The Bruce units ran at an average availability of 73 per cent in
the fourth quarter 2003. The average availability during TransCanada's period of
ownership ending December 31, 2003 was 83 per cent.
Bruce A Unit 3 reconnected to the Ontario electricity grid on January 8, 2004.
Similar to the Bruce A Unit 4 startup process, after performing and evaluating
tests of the shutdown system, Bruce A Unit 3 is expected to reconnect to the
grid and begin
FOURTH QUARTER REPORT 2003
TRANSCANADA [8
ramping up to full power. Bruce Power's cumulative restart cost for the two
Bruce A units was approximately $720 million. Bruce Power incurred approximately
$300 million on the two unit restart program for the period February 14, 2003 to
December 31, 2003, of which approximately $32 million was incurred in fourth
quarter 2003. TransCanada did not provide any funding to Bruce Power subsequent
to the acquisition of its ownership interest in February 2003. The two Bruce A
units add 1,500 megawatts (MW) of capacity bringing Bruce Power's total capacity
to 4,660 MW.
Bruce Power spent approximately $147 million on capital expenditures at Bruce B
for the period February 14, 2003 to December 31, 2003, the majority of which was
for safety systems and power uprate programs. In 2004, Bruce Power's capital
expenditure program for the two Bruce A and four Bruce B reactors is expected to
total approximately $400 million.
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. To reduce its
exposure to spot market prices, Bruce Power has entered into fixed price sales
contracts for approximately 1,560 MW of output for 2004. The average
availability in 2004 for the six Bruce units is expected to be 80 per cent
compared to 85 per cent for the year ended December 31, 2003. This decrease
reflects planned maintenance outages for two Bruce B and two Bruce A units and a
test of the Bruce B vacuum building expected in the fall, which will require all
four Bruce B units to be taken offline for approximately one month. There is a
planned maintenance outage at one of the Bruce A units for approximately one
month, towards the end of the first quarter 2004.
POWER LP INVESTMENT
Operating and other income of $9 million and $35 million for the three and
twelve months ended December 31, 2003, was consistent with the same periods in
2002.
GENERAL, ADMINISTRATIVE AND SUPPORT COSTS
General, administrative and support costs for fourth quarter 2003 of $20 million
were $5 million lower compared to fourth quarter 2002. The decrease is primarily
due to lower business development costs in fourth quarter 2003.
General, administrative and support costs for the year ended December 31, 2003
increased $13 million compared to the prior year, mainly reflecting higher
support costs as part of the company's continued investment in Power.
FOURTH QUARTER REPORT 2003
TRANSCANADA [9
POWER SALES VOLUMES
(unaudited) Three months ended December 31 Year ended December 31
(GWh) 2003 2002 2003 2002
- ------------------------------------------------ --------------------------------- -------------------------
Western operations* 2,972 2,864 12,296 12,065
Northeastern U.S. operations 1,794 1,513 6,906 5,630
Bruce Power L.P. investment** 1,846 n/a 6,655 n/a
Power LP investment 549 637 2,153 2,416
---------------- ---------------- ---------- ------------
Total 7,161 5,014 28,010 20,111
=================================================================================== =========================
* Sales volumes include TransCanada's share of the Sundance B power purchase
arrangement (50 per cent).
** Acquired in February 2003. Sales volumes reflect TransCanada's share of
Bruce Power output (31.6 per cent) for the period February 14, 2003 to
December 31, 2003.
WEIGHTED AVERAGE PLANT AVAILABILITY* Three months ended December 31 Year ended December 31
(unaudited) 2003 2002 2003 2002
- -------------------------------------------- ---------------------------------- ----------------------------
Western operations 94% 99% 93% 99%
Northeastern U.S. operations 99% 82% 94% 95%
Bruce Power L.P. investment** 73% n/a 83% n/a
Power LP investment 98% 98% 96% 94%
All plants 89% 92% 90% 96%
=============================================================================== ============================
* Plant availability is reduced by planned and unplanned outages.
** Acquired in February 2003. TransCanada's availability reflects the period
February 14, 2003 to December 31, 2003.
FOURTH QUARTER REPORT 2003
TRANSCANADA [10
CORPORATE
Net expenses were $11 million and $12 million for the three months ended
December 31, 2003 and 2002, respectively. Net expenses were $41 million for the
year ended December 31, 2003 compared to $52 million for 2002. The $11 million
decrease in net expenses for 2003 is primarily due to the positive impacts of a
weaker U.S. dollar compared to the prior year. These positive impacts
substantially offset the negative impacts of a weaker U.S. dollar reflected
in the other segments.
DISCONTINUED OPERATIONS
The company's exit from the Gas Marketing business was substantially completed
by December 31, 2001. In third quarter 2003, $50 million of the original
approximately $100 million after-tax deferred gain related to Gas Marketing was
recognized in income. At December 31, 2003, TransCanada reviewed the provision
for loss on discontinued operations and the deferred gain and concluded that the
remaining provision was adequate and the deferral of the remaining approximately
$50 million of deferred after-tax gain related to the Gas Marketing business was
appropriate.
TransCanada's investments in Gasoducto del Pacifico, INNERGY Holdings S.A.
and P.T. Paiton Energy Company, which were approved for disposal under a plan
in December 1999, will be accounted for as part of continuing operations as
of December 31, 2003 due to the length of time it has taken the company to
dispose of these assets. It is the intention of the company to continue with
the plan to dispose of these investments.
LIQUIDITY AND CAPITAL RESOURCES
FUNDS GENERATED FROM OPERATIONS
Funds generated from continuing operations were $403 million and $1,810 million
for the three and twelve months ended December 31, 2003, respectively, compared
with $467 million and $1,827 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 months and year ended December 31, 2003, capital expenditures,
excluding acquisitions, totalled $127 million (2002 - $202 million) and $391
million (2002 - $599 million), respectively, and related primarily to Iroquois'
ongoing Eastchester Expansion project into New York City, maintenance and
capacity capital in wholly-owned pipelines and construction of the MacKay River
power plant in Alberta.
Acquisitions for the year ended December 31, 2003 totalled $570 million (2002 -
$228 million) and were primarily comprised of:
o in fourth quarter 2003, the increase in interest in Portland from 43.4 per
cent to 61.7 per cent for approximately US$32 million,
o in third quarter 2003, the increase in interest in Portland from 33.3 per
cent to 43.4 per cent for approximately US$19 million,
o in third quarter 2003, the acquisition of the remaining interests in
Foothills for approximately $105 million, and
o 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 and US$78 million of debt on the
Foothills and Portland acquisitions, respectively.
FOURTH QUARTER REPORT 2003
TRANSCANADA [11
FINANCING ACTIVITIES
TransCanada used a portion of its cash resources to retire long-term debt of
$358 million and $744 million in the quarter and year ended December 31,
2003, respectively. In November 2003, the company issued $450 million of ten
year notes bearing interest at 5.65 per cent and in June 2003, the company
issued US$350 million of ten year notes bearing interest at 4.00 per cent.
For the year ended December 31, 2003, outstanding notes payable decreased by
$62 million, while cash and short-term investments increased by $126 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 January 27, 2004, TransCanada's Board of Directors declared a quarterly
dividend of $0.29 per share for the quarter ending March 31, 2004 on the
outstanding common shares. This is the 161st consecutive quarterly dividend paid
by TransCanada and its subsidiary on its common shares, and is payable on April
30, 2004 to shareholders of record at the close of business on March 31, 2004.
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
FOURTH QUARTER REPORT 2003
TRANSCANADA [12
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 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.
FOURTH QUARTER REPORT 2003
TRANSCANADA [13
OUTLOOK
In 2004, the outcome of regulatory proceedings could have a significant impact
on the expected results for the Alberta System and Canadian Mainline. Plant
availability and fluctuating power prices could have a significant impact on
Power results. Excluding these impacts as well as the settlement with a former
counterparty in 2003 and the recognition of the TransGas future tax benefits in
2003, the outlook for the company is 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 Gas Transmission and Power.
The strengthening of the Canadian dollar compared to the U.S. dollar in 2003 has
not significantly impacted TransCanada's consolidated financial results in 2003
and is not expected to have a significant impact in 2004. 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
GAS TRANSMISSION
WHOLLY-OWNED PIPELINES
ALBERTA SYSTEM
In July 2003, TransCanada, along with other utilities, filed evidence in the
Generic Cost of Capital (GCOC) Proceeding with the Alberta Energy and Utilities
Board (EUB). TransCanada has requested a return on equity of 11 per cent based
on a deemed common equity of 40 per cent in its GCOC 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. The oral portion of the hearing was completed
on January 16, 2004 with written arguments to follow.
In September 2003, TransCanada filed Phase I of the 2004 General Rate
Application (GRA) with the EUB, consisting of evidence in support of the applied
for rate base and revenue requirement. The company applied for a composite
depreciation rate of 4.13 per cent compared to the current depreciation rate of
4.00 per cent.
FOURTH QUARTER REPORT 2003
TRANSCANADA [14
Phase II of the application, dealing primarily with rate design and services,
was filed in December 2003. EUB hearings to consider the 2004 GRA Phase I and
Phase II applications are scheduled to commence, in Calgary, on April 1, 2004
and June 1, 2004, respectively.
In December 2003, the EUB approved TransCanada's application to charge interim
tolls for transportation service, effective January 1, 2004. Final tolls for
2004 will be determined based on the EUB decisions for the GCOC hearing and both
phases of the GRA.
On December 1 and 2, 2003, two natural gas pipeline failures occurred on the
Alberta System. Deliveries of gas to local communities were not impacted as a
result of either incident. Following preliminary investigations into the causes
of the two pipeline ruptures, TransCanada found evidence of external corrosion
on the pipeline. No one was injured and the impacted segment of the Alberta
System was repaired within days. The incidents are not expected to have an
impact on the company's earnings.
CANADIAN MAINLINE
In July 2003, TransCanada filed a notice of appeal with the Federal Court of
Appeal and served notice of appeal on parties to the NEB proceeding on
TransCanada's Fair Return Review and Variance Application. In September 2003,
TransCanada filed a Memorandum of Fact and Law with the Federal Court of Appeal,
and in October 2003 all interested parties filed their memoranda in response to
TransCanada's filing. The case will be heard in an oral hearing scheduled to
commence February 16, 2004.
In December 2003, the NEB approved interim tolls effective January 1, 2004 for
the Canadian Mainline. The 2004 Tolls and Tariff Application for the Canadian
Mainline was filed on January 26, 2004 and includes a request for an 11 per cent
return on a 40 per cent deemed common equity component.
OTHER GAS TRANSMISSION
IROQUOIS
Iroquois continues to make progress on the construction of the Eastchester
expansion project and is expected to place the expansion facilities into service
in February 2004.
NORTHERN DEVELOPMENT
For the Mackenzie Gas Pipeline Project, TransCanada has agreed to finance the
Aboriginal PipeLine Group (APG) for its one-third
FOURTH QUARTER REPORT 2003
TRANSCANADA [15
share of project definition phase costs which is estimated to be approximately
$90 million over three years. In the year ended December 31, 2003, TransCanada
funded $34 million which is included in Other Assets. Regulatory applications
for the Mackenzie Gas Pipeline Project have been delayed and are expected to
be filed mid-2004.
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 are expected to vote in first quarter 2004 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.
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 supplied 110 MW of capacity from a temporary facility adjacent to
the Canadian Mainline near Cobourg, Ontario up to December 31, 2003.
Demobilization of the temporary facility began in early January 2004 and is
expected to be complete by late spring.
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. 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. Construction of the
plant commenced in December 2003 and is expected to be in-service in December
2004.
Construction of MacKay River, a 165 MW facility near Fort McMurray, Alberta, was
completed in fourth quarter 2003 and commissioning is underway.
The fourth quarter scheduled maintenance outage of Bruce B Unit 8 was originally
planned to take approximately eight weeks, but was extended after inspections
identified some erosion on support
FOURTH QUARTER REPORT 2003
TRANSCANADA [16
plates in three of the unit's eight steam generators. Repairs have been
completed and approved by the Canadian Nuclear Safety Commission and the unit
is in the process of being returned to service.
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.
FOURTH QUARTER REPORT 2003
TRANSCANADA [17
EXHIBIT 2
CONSOLIDATED INCOME
(unaudited) Three months ended December 31 Year ended December 31
(millions of dollars except per share amounts) 2003 2002 2003 2002
- ------------------------------------------------------------------------ -------------- -------------- ---------------
REVENUES 1,319 1,338 5,357 5,214
OPERATING EXPENSES
Cost of sales 159 161 692 627
Other costs and expenses 434 423 1,682 1,546
Depreciation 222 217 914 848
---------------- -------------- -------------- ---------------
815 801 3,288 3,021
---------------- -------------- -------------- ---------------
OPERATING INCOME 504 537 2,069 2,193
OTHER EXPENSES/(INCOME)
Financial charges 202 215 821 867
Financial charges of joint ventures 14 23 77 90
Equity income (14) (7) (165) (33)
Interest and other income (16) (17) (60) (53)
---------------- -------------- -------------- ---------------
186 214 673 871
---------------- -------------- -------------- ---------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND NON-CONTROLLING INTERESTS 318 323 1,396 1,322
INCOME TAXES - CURRENT AND FUTURE 108 128 535 517
NON-CONTROLLING INTERESTS
Preferred securities charges 10 10 36 36
Preferred share dividends 5 5 22 22
Other 2 - 2 -
---------------- -------------- -------------- ---------------
NET INCOME FROM CONTINUING OPERATIONS 193 180 801 747
NET INCOME FROM DISCONTINUED OPERATIONS - - 50 -
---------------- -------------- -------------- ---------------
NET INCOME 193 180 851 747
================ ============== ============== ===============
NET INCOME PER SHARE
Continuing operations $0.40 $0.37 $1.66 $1.56
Discontinued operations - - 0.10 -
---------------- -------------- -------------- ---------------
BASIC $0.40 $0.37 $1.76 $1.56
================ ============== ============== ===============
DILUTED $0.40 $0.37 $1.76 $1.55
================ ============== ============== ===============
AVERAGE SHARES OUTSTANDING - BASIC (millions) 482.8 479.3 481.5 478.3
================ ============== ============== ===============
AVERAGE SHARES OUTSTANDING - DILUTED (millions) 485.5 481.7 483.9 480.7
================ ============== ============== ===============
See accompanying Notes to the Consolidated Financial Statements.
FOURTH QUARTER REPORT 2003
TRANSCANADA [18
CONSOLIDATED CASH FLOWS
(unaudited) Three months ended December 31 Year ended December 31
(millions of dollars) 2003 2002 2003 2002
- ---------------------------------------------------------------------- ---------------- ---------------- ---------------
CASH GENERATED FROM OPERATIONS
Net income from continuing operations 193 180 801 747
Depreciation 222 217 914 848
Future income taxes (18) 67 230 247
Equity income in excess of distributions received (3) - (128) (6)
Non-controlling interests 17 15 60 58
Other (8) (12) (67) (67)
--------------- ---------------- ---------------- ---------------
Funds generated from continuing operations 403 467 1,810 1,827
Decrease in operating working capital 29 101 112 33
--------------- ---------------- ---------------- ---------------
Net cash provided by continuing operations 432 568 1,922 1,860
Net cash provided by/(used in) discontinued operations - 29 (17) 59
--------------- ---------------- ---------------- ---------------
432 597 1,905 1,919
--------------- ---------------- ---------------- ---------------
INVESTING ACTIVITIES
Capital expenditures (127) (202) (391) (599)
Acquisitions, net of cash acquired (23) (209) (570) (228)
Deferred amounts and other 43 (103) (190) (115)
--------------- ---------------- ---------------- ---------------
Net cash used in investing activities (107) (514) (1,151) (942)
--------------- ---------------- ---------------- ---------------
FINANCING ACTIVITIES
Dividends and preferred securities charges (150) (139) (588) (546)
Notes payable (repaid)/issued, net (341) 182 (62) (46)
Long-term debt issued 455 - 930 -
Reduction of long-term debt (358) (256) (744) (486)
Non-recourse debt of joint ventures issued - 20 60 44
Reduction of non-recourse debt of joint ventures (16) (29) (71) (80)
Redemption of junior subordinated debentures - - (218) -
Common shares issued 16 7 65 50
--------------- ---------------- ---------------- ---------------
Net cash used in financing activities (394) (215) (628) (1,064)
--------------- ---------------- ---------------- ---------------
(DECREASE)/INCREASE IN CASH AND SHORT-TERM INVESTMENTS (69) (132) 126 (87)
CASH AND SHORT-TERM INVESTMENTS
Beginning of period 407 344 212 299
--------------- ---------------- ---------------- ---------------
CASH AND SHORT-TERM INVESTMENTS
End of period 338 212 338 212
=============== ================ ================ ===============
SUPPLEMENTARY CASH FLOW INFORMATION
Income taxes paid 28 52 220 257
Interest paid 222 227 846 866
=============== ================ ================ ===============
See accompanying Notes to the Consolidated Financial Statements.
FOURTH QUARTER REPORT 2003
TRANSCANADA [19
CONSOLIDATED BALANCE SHEET
(unaudited)
December 31 (millions of dollars) 2003 2002
- ------------------------------------------------------------------------------ -----------------------
ASSETS
CURRENT ASSETS
Cash and short-term investments 338 212
Accounts receivable 605 691
Inventories 165 178
Other 88 107
----------------------- -----------------------
1,196 1,188
LONG-TERM INVESTMENTS 733 345
PLANT, PROPERTY AND EQUIPMENT 17,451 17,496
OTHER ASSETS 1,164 937
----------------------- -----------------------
20,544 19,966
======================= =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable 367 297
Accounts payable 1,025 990
Accrued interest 208 227
Current portion of long-term debt 550 517
Current portion of non-recourse debt of joint ventures 19 75
----------------------- -----------------------
2,169 2,106
DEFERRED AMOUNTS 466 549
LONG-TERM DEBT 9,465 8,815
FUTURE INCOME TAXES 427 226
NON-RECOURSE DEBT OF JOINT VENTURES 761 1,222
PREFERRED SECURITIES 22 238
----------------------- -----------------------
13,310 13,156
----------------------- -----------------------
NON-CONTROLLING INTERESTS
Preferred securities of subsidiary 672 674
Preferred shares of subsidiary 389 389
Other 82 -
----------------------- -----------------------
1,143 1,063
----------------------- -----------------------
SHAREHOLDERS' EQUITY
Common shares 4,679 4,614
Contributed surplus 267 265
Retained earnings 1,185 854
Foreign exchange adjustment (40) 14
----------------------- -----------------------
6,091 5,747
----------------------- -----------------------
20,544 19,966
======================= =======================
See accompanying Notes to the Consolidated Financial Statements.
FOURTH QUARTER REPORT 2003
TRANSCANADA [20
CONSOLIDATED RETAINED EARNINGS
(unaudited) Year ended December 31
(millions of dollars) 2003 2002
- ---------------------------------------------------------------------- ---------------
Balance at beginning of year 854 586
Net income 851 747
Common share dividends (520) (479)
--------------- ---------------
1,185 854
=============== ===============
See accompanying Notes to the Consolidated Financial Statements.
FOURTH QUARTER REPORT 2003
TRANSCANADA [21
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 year ended December 31, 2003 include the accounts
of TransCanada and the consolidated accounts of all its subsidiaries, including
TCPL. Comparative information for the year ended December 31, 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.
On December 3, 2003, TransCanada increased its ownership interest in Portland
Natural Gas Transmission System Partnership (Portland) from 43.4 per cent to
61.7 per cent. Subsequent to the acquisition, Portland was fully consolidated in
the company's financial statements, with 38.3 per cent reflected in
non-controlling interests.
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
FOURTH QUARTER REPORT 2003
TRANSCANADA [22
stated in Canadian dollars unless otherwise indicated. Certain comparative
figures have been reclassified to conform with the current period's
presentation.
Since a determination of many assets, liabilities, revenues and expenses is
dependent upon future events, the preparation of these consolidated financial
statements requires the use of estimates and assumptions. In the opinion of
Management, these consolidated financial statements have been properly prepared
within reasonable limits of materiality and within the framework of the
company's significant accounting policies.
REGULATION
In December 2002, the National Energy Board (NEB) approved TransCanada's
application for the Canadian Mainline to charge interim tolls for
transportation service, effective January 1, 2003. In August 2003, subsequent
to the NEB's decision on the 2003 Tolls and Tariff Application, it approved
interim tolls for the period September 1, 2003 to December 31, 2003. The NEB
determined that tolls will remain interim pending a decision from the Federal
Court of Appeal on TransCanada's Fair Return Review and Variance Application.
Any adjustments to the interim tolls will be recorded in accordance with the
final NEB decision.
FOURTH QUARTER REPORT 2003
TRANSCANADA [23
3. SEGMENTED INFORMATION
Gas Transmission Power Corporate Total
-------------------- -------------------- --------------- --------------------
Three months ended December 31
(unaudited - millions of dollars) 2003 2002 2003 2002 2003 2002 2003 2002
- -------------------------------------------------------- --------- ---------- -------- ------- ------ ---------- ---------
Revenues 982 1,007 337 331 - - 1,319 1,338
Cost of sales - - (159) (161) - - (159) (161)
Other costs and expenses (326) (319) (106) (103) (2) (1) (434) (423)
Depreciation (202) (197) (20) (20) - - (222) (217)
--------- --------- ---------- -------- ------- ------ ---------- ---------
Operating income/(loss) 454 491 52 47 (2) (1) 504 537
Financial charges and non-controlling interests (193) (205) (4) (4) (22) (21) (219) (230)
Financial charges of joint ventures (14) (23) - - - - (14) (23)
Equity income 7 7 7 - - - 14 7
Interest and other income 6 5 4 2 6 10 16 17
Income taxes (100) (113) (15) (15) 7 - (108) (128)
--------- --------- ---------- -------- ------- ------ ---------- ---------
Continuing operations 160 162 44 30 (11) (12) 193 180
========= ========= ========== ======== ======= ======
Discontinued operations - -
---------- ---------
NET INCOME 193 180
========== =========
Gas Transmission Power Corporate Total
-------------------- -------------------- --------------- --------------------
Year ended December 31
(unaudited - millions of dollars) 2003 2002 2003 2002 2003 2002 2003 2002
- -------------------------------------------------------- --------- ---------- -------- ------- ------ ---------- ---------
Revenues 3,956 3,921 1,401 1,293 - - 5,357 5,214
Cost of sales - - (692) (627) - - (692) (627)
Other costs and expenses (1,270) (1,166) (405) (371) (7) (9) (1,682) (1,546)
Depreciation (831) (783) (82) (65) (1) - (914) (848)
---------- --------- ---------- -------- ------- ------ ---------- ---------
Operating income/(loss) 1,855 1,972 222 230 (8) (9) 2,069 2,193
Financial charges and non-controlling interests (781) (821) (11) (13) (89) (91) (881) (925)
Financial charges of joint ventures (76) (90) (1) - - - (77) (90)
Equity income 66 33 99 - - - 165 33
Interest and other income 17 17 14 13 29 23 60 53
Income taxes (459) (458) (103) (84) 27 25 (535) (517)
---------- --------- ---------- -------- ------- ------ ---------- ---------
Continuing operations 622 653 220 146 (41) (52) 801 747
========== ========= ========== ======== ======= ======
Discontinued operations 50 -
---------- ---------
NET INCOME 851 747
========== =========
TOTAL ASSETS
December 31 2003 2002
(millions of dollars) (unaudited)
- --------------------------------------------------------------------------------------- ------------------
Gas Transmission 16,972 16,979
Power 2,746 2,391
Corporate 815 457
------------------------ ------------------
Continuing Operations 20,533 19,827
Discontinued Operations 11 139
------------------------ ------------------
20,544 19,966
======================== ==================
FOURTH QUARTER REPORT 2003
TRANSCANADA [24
4. LONG-TERM DEBT
December 31 2003 2002
(millions of dollars) (unaudited)
- --------------------------------------------------------------------------------------- ----------------------
Alberta System 2,341 2,892
Foreign exchange differential recoverable through
the tollmaking process (16) (271)
---------------------- ----------------------
2,325 2,621
---------------------- ----------------------
Canadian Mainline 4,913 5,277
Foreign exchange differential recoverable through
the tollmaking process (60) (330)
---------------------- ----------------------
4,853 4,947
---------------------- ----------------------
Other 2,837 1,764
---------------------- ----------------------
10,015 9,332
Less: current portion of long-term debt 550 517
---------------------- ----------------------
9,465 8,815
====================== ======================
On June 9, 2003, the company issued US$350 million of unsecured 4.00 per cent
notes maturing on June 15, 2013. On November 18, 2003, the company issued $450
million of unsecured 5.65 per cent notes maturing on January 15, 2014.
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 December 31, 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 account in Shareholders' Equity.
ASSET/(LIABILITY)
December 31 2003 2002
(millions of dollars) (unaudited)
- --------------------------------------------- ------------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------- -----------------------------
FOREIGN EXCHANGE
Cross-currency swaps
U.S. dollars 65 65 (8) (8)
- ------------------------------------------------------------------------------------------------------------------
FOURTH QUARTER REPORT 2003
TRANSCANADA [25
At December 31, 2003, the notional principal amounts of cross-currency swaps
were US$250 million (2002 - US$350 million).
RECONCILIATION OF FOREIGN EXCHANGE ADJUSTMENT
December 31 2003 2002
(millions of dollars) (unaudited)
- ------------------------------------------------------------------- -------------------- --------------
Balance at beginning of year 14 13
Translation (losses)/gains on foreign currency denominated net assets (136) 3
Foreign exchange gains/(losses) on derivatives, and other 82 (2)
-------------------- --------------
(40) 14
- -------------------------------------------------------------------------------------------------------------------
FOREIGN EXCHANGE AND INTEREST RATE MANAGEMENT ACTIVITY
The company manages the foreign exchange risk of U.S. dollar debt, U.S. dollar
expenses and the interest rate exposures of the Alberta System, the Canadian
Mainline and the Foothills System through the use of foreign currency and
interest rate derivatives. These derivatives are comprised of contracts for
periods up to nine years. Certain of the realized gains and losses on these
derivatives are shared with shippers on predetermined terms.
ASSET/(LIABILITY)
December 31 2003 2002
(millions of dollars) (unaudited)
- ------------------------------------------ ----------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------- -----------------------------
FOREIGN EXCHANGE
Cross-currency swaps (26) (26) 56 56
INTEREST RATE
Interest rate swaps
Canadian dollars 2 15 4 56
U.S. dollars - 8 (1) 4
- --------------------------------------------------------------------------------------------------------------
At December 31, 2003, the notional principal amounts of cross-currency swaps
were US$282 million (2002 - US$282 million). Notional principal amounts for
interest rate swaps were $964 million (2002 - $874 million) and US$100 million
(2002 - US$175 million).
6. STOCK-BASED COMPENSATION
TransCanada's accounting policy is to expense stock options. This charge is
reflected in the Gas Transmission and Power segments. In the year ended December
31, 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.
FOURTH QUARTER REPORT 2003
TRANSCANADA [26
Amounts expensed for the three months and year ended December 31, 2003 were
approximately $1 million and $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
The Board of Directors approved plans to dispose of the company's International,
Canadian Midstream, and certain other businesses (December Plan) and the Gas
Marketing business in December 1999 and July 2001, respectively. The company's
disposals under both plans were substantially completed at December 31, 2001.
TransCanada's investments in Gasoducto del Pacifico, INNERGY Holdings S.A. and
P.T. Paiton Energy Company approved for disposal under the December Plan will be
accounted for as part of continuing operations as of December 31, 2003, due to
the length of time it has taken the company to dispose of these assets. It is
the intention of the company to continue with its plan to dispose of these
investments.
The company mitigated certain of its remaining exposures associated with the
contingent liabilities related to the divested Gas Marketing operations by
acquiring from a subsidiary of Mirant Corporation certain contracts under
which it still had exposure in 2003, and simultaneously hedging the market
price exposures of these contracts. The company remains contingently liable
for certain residual obligations. In 2003, $50 million of the original
approximately $100 million after-tax deferred gain was recognized in income.
The after-tax deferred gain is included in Deferred Amounts.
At December 31, 2003, TransCanada reviewed the provision for loss on
discontinued operations and the deferred gain and concluded that the remaining
provision was adequate and the deferral of the remaining approximately $50
million of after-tax deferred gain related to the Gas Marketing business was
appropriate.
Revenues from discontinued operations for the year ended December 31, 2003 were
$2 million (2002 - $36 million). Net income/(loss) from discontinued operations
for the year ended December 31, 2003 was $50 million, net of $29 million income
taxes (2002 - nil). The provision for loss on discontinued operations at
December 31, 2003 was $41 million (2002 - $83 million). The provision for loss
on discontinued operations is included in Accounts Payable.
FOURTH QUARTER REPORT 2003
TRANSCANADA [27
8. INVESTMENT IN BRUCE POWER L.P.
On February 14, 2003, the company acquired a 31.6 per cent interest in Bruce
Power L.P. (Bruce Power) for $409 million, including closing adjustments. As
part of the acquisition, the company also funded a one-third share ($75 million)
of a $225 million accelerated deferred rent payment made by Bruce Power to
Ontario Power Generation. The resulting note receivable from Bruce Power 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
Capital lease 301
Power sales agreements (131)
Pension liability and other (42)
-------------
409
=============
The amount allocated to the investment in Bruce Power includes a purchase price
allocation of $301 million to the capital lease of the Bruce Power plant which
will be amortized on a straight-line basis over the lease term which extends to
2018, resulting in an annual amortization expense of $19 million. The amount
allocated to the power sales agreements will be amortized to income over the
remaining term of the underlying sales contracts. 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 amount
allocated to the pension liability will be amortized to income over the 11 year
expected average remaining service life of Bruce Power employees, resulting in
an annual amortization of $3 million.
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, which is estimated to be approximately $90 million over three years. In
the year ended December 31, 2003, TransCanada funded $34 million of this loan
which is included in Other Assets. The ability to recover this investment is
contingent upon the outcome of the project.
FOURTH QUARTER REPORT 2003
TRANSCANADA [28
SUPPLEMENTARY INFORMATION
As at December 31, 2003, TransCanada had 483,200,387 issued and outstanding
common shares. In addition, there were 10,354,958 outstanding options to
purchase common shares, of which 7,588,203 were exercisable as at December 31,
2003.
- --------------------------------------------------------------------------------
TransCanada welcomes questions from shareholders and potential investors. Please
telephone:
Investor Relations, at 1-800-361-6522 (Canada and U.S. Mainland) or direct dial
David Moneta/Debbie Stein at (403) 920-7911. The investor fax line is (403)
920-2457. Media Relations: Hejdi Feick/Anita Perry at (403) 920-7859.
Visit TransCanada's Internet site at: http://www.transcanada.com
- --------------------------------------------------------------------------------
EXHIBIT 3
TRANSCANADA CORPORATION
U.S. GAAP CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED STATEMENT OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME IN
ACCORDANCE WITH U.S. GAAP(2)
Three months ended Year ended
December 31 December 31
--------------------------- ----------------------------
(MILLIONS OF DOLLARS) 2003 2002 2003 2002
- ----------------------------------------------------------------- ------------- ------------ ------------- --------------
Revenues(3) 1,227 1,178 4,919 4,565
------------- ------------ ------------- --------------
Cost of sales(3) 127 127 592 441
Other costs and expenses 424 410 1,663 1,532
Depreciation 209 185 819 729
------------- ------------ ------------- --------------
760 722 3,074 2,702
------------- ------------ ------------- --------------
Operating income 467 456 1,845 1,863
Other (income)/expenses
Equity income(2)(4)(5) (49) (61) (334) (260)
Other expenses(1)(5)(6) 216 222 863 872
Income taxes 104 121 515 499
------------- ------------ ------------- --------------
271 282 1,044 1,111
------------- ------------ ------------- --------------
Income from continuing operations - U.S. GAAP 196 174 801 752
Net income from discontinued operations - U.S. GAAP - - 50 -
------------- ------------ ------------- --------------
Income before cumulative effect of the application of
accounting changes in accordance with U.S. GAAP 196 174 851 752
Cumulative effect of the application of EITF 02-3, net of tax(3) - - (13) -
------------- ------------ ------------- --------------
NET INCOME IN ACCORDANCE WITH U.S. GAAP 196 174 838 752
Adjustments affecting comprehensive income under U.S. GAAP
Foreign currency translation adjustment, net of tax(7) (11) - (54) 1
Additional minimum pension liability, net of tax(8) (11) (40) (2) (40)
Unrealized (loss)/gain on derivatives, net of tax(5) (6) - 8 (4)
------------- ------------ ------------- --------------
COMPREHENSIVE INCOME IN ACCORDANCE WITH U.S. GAAP 168 134 790 709
============= ============ ============= ==============
NET INCOME PER SHARE IN ACCORDANCE WITH U.S. GAAP
Continuing operations $0.41 $0.36 $1.67 $1.57
Discontinued operations - - 0.10 -
------------- ------------ ------------- --------------
Income before cumulative effect of the application of
accounting changes in accordance with U.S. GAAP $0.41 $0.36 $1.77 $1.57
Cumulative effect of the application of EITF 02-3, net of tax(3) - - (0.03) -
------------- ------------ ------------- --------------
Basic $0.41 $0.36 $1.74 $1.57
============= ============ ============= ==============
Diluted $0.40 $0.36 $1.73 $1.56
============= ============ ============= ==============
Net income per share in accordance with Canadian GAAP
Basic $0.40 $0.37 $1.76 $1.56
============= ============ ============= ==============
Diluted $0.40 $0.37 $1.76 $1.55
============= ============ ============= ==============
Dividends per common share $0.27 $0.25 $1.08 $1.00
============= ============ ============= ==============
COMMON SHARES OUTSTANDING (millions)
Average for the period - Basic 482.8 479.3 481.5 478.3
============= ============ ============= ==============
Average for the period - Diluted 485.5 481.7 483.9 480.7
============= ============ ============= ==============
Page 1 of 5
RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS
Three months ended Year ended
December 31 December 31
------------------------ -------------------------
(MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 2003 2002 2003 2002
- ----------------------------------------------------------------- ------------- --------- ------------- -----------
Net income from continuing operations in accordance with
Canadian GAAP 193 180 801 747
U.S. GAAP adjustments
Unrealized (loss)/gain on foreign exchange and interest rate
derivatives(5) (3) (1) (9) 30
Tax impact of (loss)/gain on foreign exchange and interest
rate derivatives 1 - 3 (12)
Unrealized gain/(loss) on energy trading contracts(3) 14 (7) 28 (21)
Tax impact of unrealized gain/(loss) on energy trading
contracts (5) 2 (10) 8
Equity loss(4)(5) (6) - (18) -
Tax impact of equity loss 2 - 6 -
------------- --------- ------------- -----------
Income from continuing operations in accordance with U.S. GAAP 196 174 801 752
============= ============ ============= ==============
CONDENSED BALANCE SHEET IN ACCORDANCE WITH U.S. GAAP(2)
December 31, December 31,
(MILLIONS OF DOLLARS) 2003 2002
- --------------------------------------------------------------------------------- ----------------- ----------------
Current assets 1,020 1,079
Long-term energy trading assets(3) - 218
Long-term investments(4)(9) 1,760 1,683
Plant, property and equipment(10) 15,798 14,992
Regulatory asset(11) 2,721 2,578
Other assets(5) 1,192 884
----------------- ----------------
22,491 21,434
================= ================
Current liabilities(12) 2,073 2,006
Long-term energy trading liabilities(3) - 41
Deferred amounts(3)(5)(9)(10) 741 789
Long-term debt(5) 9,494 8,963
Deferred income taxes(11) 3,039 2,692
Preferred securities(13) 694 694
Trust originated preferred securities - 218
Non-controlling interests 471 389
Shareholders' equity 5,979 5,642
----------------- ----------------
22,491 21,434
================= ================
Page 2 of 5
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)
Additional minimum liability for employee future
benefits, net of tax of $22(8) - (40) - (40)
Unrealized loss on derivatives, net of tax of $(1)(5) - - (4) (4)
Foreign currency translation adjustment, net of tax of
nil(7) 1 - - 1
---------------- ------------------ ------------------ ----------
Balance at December 31, 2002 14 (96) (13) (95)
Additional minimum liability for employee future
benefits, net of tax of $1(8) - (2) - (2)
Unrealized gain on derivatives, net of tax of nil(5) - - 8 8
Foreign currency translation adjustment, net of
tax of $(64)(7) (54) - - (54)
---------------- ------------------ ------------------ ----------
BALANCE AT DECEMBER 31, 2003 (40) (98) (5) (143)
================ ================== ================== ==========
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 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) 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.
3) In 2002, for U.S. GAAP purposes, 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 was netting all revenues and expenses related to
derivative energy trading contracts. Prior to the adoption of EITF 02-3,
energy trading contracts were measured at fair value determined as at the
balance sheet date. The accounting change was applied retroactively with
reclassification of prior periods. Effective January 1, 2003, the Company
fully adopted EITF 02-3. This accounting change was effected through a
cumulative adjustment of $(13) million, after tax, in the current year's
income with no restatement of prior periods. Substantially all of the
energy trading contracts are accounted for as hedges under Canadian GAAP.
Subsequent to October 1, 2003, the energy trading contracts that qualified
as hedges were accounted for as hedges under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 133. All gains or losses on the
contracts that did not qualify as hedges, and the amounts of any
ineffectiveness on the hedging contracts, are included in income each
period. Substantially all of the amounts recorded in 2003 as differences
between U.S. and Canadian GAAP relate to gains and losses on contracts that
were not accounted for as hedges.
4) (a) 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.
(b) Under both Canadian GAAP and U.S. GAAP, interest is capitalized on
expenditures relating to construction of development projects actively
being prepared for their intended use. In Bruce Power L.P., under U.S.
GAAP, the carrying value of development projects against which interest
is capitalized is lower due to the expensing of pre-operating costs.
Page 3 of 5
5) Under the provisions of 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.
6) Other expenses included an allowance for funds used during construction of
$2 million for the year ended December 31, 2003 (2002 - $4 million).
7) Under U.S. GAAP, changes in the foreign currency translation adjustment
account must be recorded as a component of comprehensive income.
8) 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.
9) 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.
10) 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 plant, property 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 plant, property 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. The estimated fair value of the liability as
at December 31, 2003 was $7 million. The cumulative effect of the
application of SFAS No. 143 on income with respect to the years ended
December 31, 2001 and 2002 would have been less than $1 million. 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.
11) 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.
12) Current liabilities at December 31, 2003 include dividends payable of $136
million (2002 - $125 million) and current taxes payable of $271 million
(2002 - $150 million).
13) The fair value of the preferred securities at December 31, 2003 was $612
million (2002 - $743 million). The Company made preferred securities
charges payments of $57 million for the year ended December 31, 2003 (2002
- $58 million).
14) The Company's Statement of Consolidated Cash Flows under U.S. GAAP would be
identical to that under Canadian GAAP except that the preferred securities
charges would be classified with funds generated from continuing
operations.
Page 4 of 5
15) Effective December 31, 2003, the Company adopted the provisions of FIN 46
"Consolidation of Variable Interest Entities". Adopting these provisions
has had no impact on the U.S. GAAP financial statements of the Company.
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 $836 million for the year ended December 31, 2003 (2002 -
$749 million) and net income per share (basic) of $1.74 for the year ended
December 31, 2003 (2002 - $1.56 per share).
SUMMARIZED FINANCIAL INFORMATION OF LONG-TERM INVESTMENTS(16)
Three months ended Year ended
December 31 December 31
--------------------------- ----------------------------
(MILLIONS OF DOLLARS) 2003 2002 2003 2002
- ----------------------------------------------------------------- ------------- ------------ ------------- --------------
INCOME
Revenues 257 210 1,063 798
Other costs and expenses (157) (77) (528) (273)
Depreciation (28) (40) (141) (146)
Financial charges and other (19) (28) (53) (112)
------------- ------------ ------------- --------------
Proportionate share of income before income taxes of long-term
investments 53 65 341 267
============= ============ ============= ==============
December 31, December 31,
(MILLIONS OF DOLLARS) 2003 2002
- --------------------------------------------------------------------------------------------------- -------------------
BALANCE SHEET
Current assets 385 246
Plant, property and equipment 2,944 3,251
Other assets (net) - 112
Current liabilities (204) (216)
Deferred amounts (net) (286) -
Non-recourse debt (1,060) (1,646)
Deferred income taxes (19) (64)
---------------- -------------------
Proportionate share of net assets of long-term investments 1,760 1,683
================= ===================
16) 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 5 of 5
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 January 26, 2004 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 January 26, 2004 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 December 31, 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
January 26, 2004
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 December 31, 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
January 26, 2004
EXHIBIT 8
[TRANSCANADA LOGO]
TRANSCANADA CORPORATION
_______________________________________________________________________________
Media Inquiries: Hejdi Feick/Anita Perry (403) 920-7877
Analyst Inquiries: David Moneta/Debbie Stein (403) 920-7911
N e w s R e l e a s e
TransCanada reports another year of strong performance; Board raises dividend
Quarterly dividend increased to $0.29 per share
CALGARY, Alberta - January 27, 2004 - (TSX: TRP) (NYSE: TRP)
FOURTH QUARTER AND YEAR-END 2003 FINANCIAL HIGHLIGHTS
(All financial figures are in Canadian dollars unless noted otherwise)
o TransCanada Corporation's Board of Directors today raised the quarterly
dividend on the company's common shares from $0.27 per share to $0.29
per share, an increase of seven per cent, for the quarter ending
March 31, 2004. This is the 161st consecutive quarterly dividend on
TransCanada's common shares paid by TransCanada and its subsidiary. It is
payable on April 30, 2004 to shareholders of record at the close of
business on March 31, 2004.
o TransCanada's net income for the fourth quarter 2003 was $193 million or
$0.40 per share, an increase of $13 million or $0.03 per share compared to
$180 million or $0.37 per share for the fourth quarter 2002. This increase
is primarily due to increased net earnings from the Power business.
o For the year ended December 31, 2003, TransCanada's net income was $851
million or $1.76 per share. This compares to $747 million or $1.56 per
share for 2002. Included in 2003 was net income from discontinued
operations of $50 million or $0.10 per share reflecting the third quarter
2003 income recognition of a portion 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 year ended December 31, 2003
was $801 million or $1.66 per share compared to $747 million or $1.56 per
share in 2002. The increase of $54 million or $0.10 per share 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
Gas Transmission business.
o Funds generated from continuing operations for the fourth quarter 2003,
were $403 million, a decrease of $64 million compared to fourth quarter
2002. Funds generated from continuing operations for the year ended
December 31, 2003 were $1,810 million, a decrease of $17 million compared
to 2002.
"It's been a solid year for TransCanada," said Hal Kvisle, TransCanada's chief
executive officer. "We've delivered healthy operating and financial performance,
and our balance sheet remains strong. As a result of our increased earnings
and the strength of our cash flow -- and recognizing the importance of the
dividend to our shareholders -- the Board has increased the dividend on our
common shares for the fourth consecutive year.
"Over the course of the year, we've invested more than $1.2 billion,
including the assumption of debt, in our natural gas transmission and power
businesses. This includes our purchase of a 31.6 per cent interest in Bruce
Power, a low cost power producer in one of the highest demand markets in
North America. We continued to grow our gas transmission business through the
purchase of additional interests in the Foothills and Portland pipelines, and
longer term, we remain focused on strengthening our ability to tap into new
sources of natural gas supply. To that end, we made good progress on the
development of new pipelines to connect northern gas and new receiving
terminals to bring liquefied natural gas to North American markets.
"On the regulatory front, we're in for another busy year. The outcome of
regulatory proceedings could have a significant impact on results from the
Alberta System and the Canadian Mainline in 2004. We were encouraged by the
National Energy Board's July 2003 decision on our Mainline tolls application,
but we remain concerned about the regulators' assessment of the level of
business risk inherent in our Mainline and Alberta systems and the resulting
low returns on equity and deemed equity thicknesses. We look forward to
continuing the dialogue with regulators and our customers in 2004.
"Over the year ahead, we will continue to focus on our core strategies with
the same emphasis on disciplined, prudent execution that has contributed to
our success. We have a skilled, dedicated team of people at TransCanada, and
it's as a result of their efforts that we've established a track record of
strong performance over the past four years. We remain well-positioned to
capture opportunities that create significant value for our shareholders over
the long term," said Mr. Kvisle.
FOURTH QUARTER 2003 DEVELOPMENTS
NATURAL GAS TRANSMISSION
INCREASED INTEREST IN PORTLAND
On December 3, 2003, TransCanada increased its ownership interest in Portland
Natural Gas Transmission System Partnership (Portland) from 43.4 per cent to
61.7 per cent. TransCanada acquired the additional interest from El Paso
Corporation for US$82 million including US$50 million of assumed debt.
"The Portland pipeline is essentially an extension of our Mainline System into
the Boston regional market," said Mr. Kvisle. "Our increased stake in Portland
further bolsters our role as an energy supplier to the US Northeast."
WESTERN ALBERTA SYSTEM PIPELINE INCIDENTS
On December 1 and December 2, 2003 two natural gas pipeline failures occurred on
TransCanada's Alberta System. TransCanada immediately activated its emergency
response plan to isolate damaged sections of pipeline. No one was injured, and
both sites were returned to operation within days. Deliveries of gas to local
communities were not impacted as a result of either incident. Following
preliminary investigations into the causes of the two pipeline failures,
TransCanada found evidence of external corrosion on the pipeline.
"The findings from the investigation will be used to improve future integrity
work," said Mr. Kvisle. "Safety of the public, employees and the environment is
a top priority at TransCanada."
POWER
GRANDVIEW COGENERATION PROJECT
TransCanada began construction of the Grandview cogeneration facility in
December 2003 following the announcement of an agreement between TransCanada
and Grandview Cogeneration Corporation, an affiliate of Irving Oil Limited
(Irving), in October to build the plant. The 90 megawatt (MW) natural gas-fired
cogeneration power plant will be located on the site of the
Irving Oil Refinery in Saint John, New Brunswick. The plant is expected to be
in-service by the end of 2004.
"The Grandview project is an excellent example of how TransCanada is growing its
power business through new developments in niche markets, capitalizing on our
expertise in fuel efficient cogeneration," said Mr. Kvisle.
BRUCE POWER RESTARTS
Bruce A Unit 4 began producing power to the Ontario power grid on October 7,
2003 and achieved commercial production effective November 1, 2003. Bruce A Unit
3 was synchronized to the grid on January 8, 2004. Similar to the Unit 4 startup
process, after performing and evaluating tests of the shutdown system, Unit 3 is
expected to reconnect to the grid and begin ramping up to full power. Units 3
and 4 together will have a capacity of 1,500 MW of electricity bringing Bruce
Power's total capacity to approximately 4,660 MW.
"The Bruce facility is a high quality asset . The restarts of Bruce A Units 3
and 4 took a tremendous amount of work and we applaud the Bruce team on their
efforts related to this complex project," said Mr. Kvisle. "Bruce made a
significant contribution to TransCanada's earnings in 2003, and we're very
pleased with its performance to date."
REGULATORY DEVELOPMENTS
ALBERTA SYSTEM
In December 2003, the Alberta Energy and Utilities Board (EUB) approved
TransCanada's November 28, 2003 application for interim tolls for 2004 on the
Alberta System. Tolls will be finalized when decisions from the Generic Cost of
Capital (GCOC) hearing and the hearings on both phases of the General Rate
Application (GRA) have been received.
In the GCOC application, filed in July 2003, TransCanada has requested a return
on equity of 11 per cent with a deemed common equity of 40 per cent. 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. Oral testimony in the hearing concluded January 16, 2004.
In the first phase of its 2004 GRA, TransCanada has applied for an increase in
the composite depreciation rate of 4.13 per cent compared to the current
depreciation rate of 4.00 per cent. The GRA Phase I hearing is scheduled to
begin April 1, 2004. The
Phase II hearing, dealing primarily with rate design and services, is set to
commence June 1, 2004.
CANADIAN MAINLINE
In July 2003, the National Energy Board (NEB) issued its decision on
TransCanada's 2003 Mainline Tolls Application. In this decision, the NEB
approved all key components of the application. 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.
The Federal Court of Appeal is expected to hear TransCanada's appeal of the
NEB's Review and Variance decision commencing February 16, 2004.
The company's 2004 Tolls and Tariff Application for the Canadian Mainline was
filed January 26, 2004 and includes a request for an 11 per cent return on a 40
per cent deemed common equity component.
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 fourth 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, February
3 by dialing 1-800-408-3053 or 416-695-5800 (Toronto area) and entering pass
code 1520354.
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 39,000 kilometres (24,200 miles)
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 generation - 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.
FOURTH QUARTER 2003 FINANCIAL HIGHLIGHTS
(unaudited)
OPERATING RESULTS Three months ended December 31 Year ended December 31
(millions of dollars) 2003 2002 2003 2002
- -------------------------------------------------------------------------------- ---------------- --------------- ---------------
REVENUES 1,319 1,338 5,357 5,214
NET INCOME
Continuing operations 193 180 801 747
Discontinued operations - - 50 -
---------------- ---------------- --------------- ---------------
193 180 851 747
================ ================ =============== ===============
CASH FLOWS
Funds generated from continuing operations 403 467 1,810 1,827
Capital expenditures 127 202 391 599
Acquisitions, net of cash acquired 23 209 570 228
Three months ended December 31 Year ended December 31
COMMON SHARE STATISTICS 2003 2002 2003 2002
- -------------------------------------------------------------------------------- ---------------- --------------- ---------------
NET INCOME PER SHARE - BASIC
Continuing operations $0.40 $0.37 $1.66 $1.56
Discontinued operations - - 0.10 -
---------------- ---------------- --------------- ---------------
$0.40 $0.37 $1.76 $1.56
================ ================ =============== ===============
DIVIDENDS PER SHARE $0.27 $0.25 $1.08 $1.00
COMMON SHARES OUTSTANDING (millions)
Average for the period 482.8 479.3 481.5 478.3
End of period 483.2 479.5 483.2 479.5
- ---------------------------------------------------------------------------------------------------------------------------------
