Exhibit 13.2
TRANSCANADA [27
SECOND QUARTER REPORT 2008
Consolidated Income
(unaudited) | Three months ended June 30 | Six months ended June 30 | ||||||||||||||
(millions of dollars except per share amounts) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Revenues | 2,017 | 2,208 | 4,150 | 4,452 | ||||||||||||
Operating Expenses | ||||||||||||||||
Plant operating costs and other | 733 | 761 | 1,431 | 1,493 | ||||||||||||
Commodity purchases resold | 347 | 523 | 757 | 1,094 | ||||||||||||
Depreciation | 301 | 300 | 597 | 590 | ||||||||||||
1,381 | 1,584 | 2,785 | 3,177 | |||||||||||||
636 | 624 | 1,365 | 1,275 | |||||||||||||
Other Expenses/(Income) | ||||||||||||||||
Financial charges | 186 | 264 | 404 | 501 | ||||||||||||
Financial charges of joint ventures | 17 | 19 | 33 | 40 | ||||||||||||
Interest income and other | (34 | ) | (48 | ) | (73 | ) | (79 | ) | ||||||||
Calpine bankruptcy settlements | - | - | (279 | ) | - | |||||||||||
Writedown of Broadwater LNG project costs | - | - | 41 | - | ||||||||||||
169 | 235 | 126 | 462 | |||||||||||||
Income before Income Taxes and Non-Controlling Interests | 467 | 389 | 1,239 | 813 | ||||||||||||
Income Taxes | ||||||||||||||||
Current | 105 | 96 | 352 | 264 | ||||||||||||
Future | 21 | 16 | 26 | (21 | ) | |||||||||||
126 | 112 | 378 | 243 | |||||||||||||
Non-Controlling Interests | ||||||||||||||||
Preferred share dividends of subsidiary | 5 | 5 | 11 | 11 | ||||||||||||
Non-controlling interest in PipeLines LP | 13 | 14 | 34 | 31 | ||||||||||||
Other | (1 | ) | 1 | 43 | 6 | |||||||||||
17 | 20 | 88 | 48 | |||||||||||||
Net Income | 324 | 257 | 773 | 522 | ||||||||||||
Net Income Per Share | ||||||||||||||||
Basic and Diluted | $ | 0.58 | $ | 0.48 | $ | 1.40 | $ | 1.00 | ||||||||
Average Shares Outstanding - Basic (millions) | 561 | 536 | 551 | 522 | ||||||||||||
Average Shares Outstanding - Diluted (millions) | 563 | 538 | 553 | 525 | ||||||||||||
See accompanying notes to the consolidated financial statements. |
TRANSCANADA [28
SECOND QUARTER REPORT 2008
Consolidated Cash Flows
(unaudited) | Three months ended June 30 | Six months ended June 30 | ||||||||||||||
(millions of dollars) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Cash Generated From Operations | ||||||||||||||||
Net income | 324 | 257 | 773 | 522 | ||||||||||||
Depreciation | 301 | 300 | 597 | 590 | ||||||||||||
Future income taxes | 21 | 16 | 26 | (21 | ) | |||||||||||
Non-controlling interests | 17 | 20 | 88 | 48 | ||||||||||||
Employee future benefits funding (in excess of)/ lower than | ||||||||||||||||
expense | (7 | ) | 3 | 13 | 15 | |||||||||||
Writedown of Broadwater LNG project costs | - | - | 41 | - | ||||||||||||
Other | 20 | - | 60 | 24 | ||||||||||||
676 | 596 | 1,598 | 1,178 | |||||||||||||
(Increase)/decrease in operating working capital | (104 | ) | 93 | (98 | ) | 129 | ||||||||||
Net cash provided by operations | 572 | 689 | 1,500 | 1,307 | ||||||||||||
Investing Activities | ||||||||||||||||
Capital expenditures | (633 | ) | (386 | ) | (1,093 | ) | (692 | ) | ||||||||
Acquisitions, net of cash acquired | (2 | ) | (4 | ) | (4 | ) | (4,224 | ) | ||||||||
Deferred amounts and other | (13 | ) | (42 | ) | 99 | (148 | ) | |||||||||
Net cash used in investing activities | (648 | ) | (432 | ) | (998 | ) | (5,064 | ) | ||||||||
Financing Activities | ||||||||||||||||
Dividends on common shares | (137 | ) | (131 | ) | (267 | ) | (287 | ) | ||||||||
Distributions paid to non-controlling interests | (65 | ) | (29 | ) | (86 | ) | (45 | ) | ||||||||
Notes payable issued/(repaid), net | 754 | (804 | ) | 724 | 261 | |||||||||||
Long-term debt issued | - | 89 | 112 | 1,451 | ||||||||||||
Reduction of long-term debt | (379 | ) | (470 | ) | (773 | ) | (795 | ) | ||||||||
Long-term debt of joint ventures issued | 17 | 98 | 34 | 110 | ||||||||||||
Reduction of long-term debt of joint ventures | (28 | ) | (107 | ) | (57 | ) | (119 | ) | ||||||||
Common shares issued, net of issue costs | 1,237 | 7 | 1,246 | 1,697 | ||||||||||||
Junior subordinated notes issued | - | 1,107 | - | 1,107 | ||||||||||||
Partnership units of subsidiary issued | - | - | - | 348 | ||||||||||||
Net cash provided by/(used in) financing activities | 1,399 | (240 | ) | 933 | 3,728 | |||||||||||
Effect of Foreign Exchange Rate Changes on Cash | ||||||||||||||||
and Cash Equivalents | (3 | ) | (27 | ) | 20 | (30 | ) | |||||||||
Increase /(Decrease) in Cash and Cash Equivalents | 1,320 | (10 | ) | 1,455 | (59 | ) | ||||||||||
Cash and Cash Equivalents | ||||||||||||||||
Beginning of period | 639 | 350 | 504 | 399 | ||||||||||||
Cash and Cash Equivalents | ||||||||||||||||
End of period | 1,959 | 340 | 1,959 | 340 | ||||||||||||
Supplementary Cash Flow Information | ||||||||||||||||
Income taxes paid | 312 | 125 | 479 | 212 | ||||||||||||
Interest paid | 277 | 269 | 481 | 542 | ||||||||||||
See accompanying notes to the consolidated financial statements. |
TRANSCANADA [29
SECOND QUARTER REPORT 2008
Consolidated Balance Sheet
(unaudited) | June 30, | December 31, | |
(millions of dollars) | 2008 | 2007 | |
ASSETS | |||
Current Assets | |||
Cash and cash equivalents | 1,959 | 504 | |
Accounts receivable | 1,145 | 1,116 | |
Inventories | 549 | 497 | |
Other | 401 | 188 | |
4,054 | 2,305 | ||
Plant, Property and Equipment | 24,149 | 23,452 | |
Goodwill | 2,813 | 2,633 | |
Other Assets | 1,839 | 1,940 | |
32,855 | 30,330 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||
Current Liabilities | |||
Notes payable | 1,133 | 421 | |
Accounts payable and accrued liabilities | 1,989 | 1,767 | |
Accrued interest | 252 | 261 | |
Current portion of long-term debt | 537 | 556 | |
Current portion of long-term debt of joint ventures | 30 | 30 | |
3,941 | 3,035 | ||
Deferred Amounts | 1,283 | 1,107 | |
Future Income Taxes | 1,195 | 1,179 | |
Long-Term Debt | 11,945 | 12,377 | |
Long-Term Debt of Joint Ventures | 875 | 873 | |
Junior Subordinated Notes | 1,006 | 975 | |
20,245 | 19,546 | ||
Non-Controlling Interests | |||
Non-controlling interest in PipeLines LP | 603 | 539 | |
Preferred shares of subsidiary | 389 | 389 | |
Other | 73 | 71 | |
1,065 | 999 | ||
Shareholders' Equity | 11,545 | 9,785 | |
32,855 | 30,330 | ||
See accompanying notes to the consolidated financial statements. |
TRANSCANADA [30
SECOND QUARTER REPORT 2008
Consolidated Comprehensive Income
(unaudited) | Three months ended June 30 | Six months ended June 30 | ||||||||||||||
(millions of dollars) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Net Income | 324 | 257 | 773 | 522 | ||||||||||||
Other Comprehensive Income/(Loss), Net of Income Taxes | ||||||||||||||||
Change in foreign currency translation gains and losses on | ||||||||||||||||
investments in foreign operations (1) | (14 | ) | (184 | ) | 39 | (221 | ) | |||||||||
Change in gains and losses on hedges of investments | ||||||||||||||||
in foreign operations (2) | 17 | 46 | (24 | ) | 55 | |||||||||||
Change in gains and losses on derivative instruments | ||||||||||||||||
designated as cash flow hedges (3) | 29 | (36 | ) | 33 | (37 | ) | ||||||||||
Reclassification to net income of gains and losses on derivative | ||||||||||||||||
instruments designated as cash flow hedges pertaining to | ||||||||||||||||
prior periods (4) | 1 | 23 | (18 | ) | 20 | |||||||||||
Other Comprehensive Income/(Loss) | 33 | (151 | ) | 30 | (183 | ) | ||||||||||
Comprehensive Income | 357 | 106 | 803 | 339 | ||||||||||||
(1) Net of income tax expense of $5 million and recovery of $20 million for the three months and six months ended June 30, 2008, respectively (2007 - $51 and $56 million expense, respectively). | ||||||||||||||||
(2) Net of income tax expense of $8 million and recovery of $14 million for the three months and six months ended June 30, 2008, respectively (2007 - $23 and $28 million expense, respectively). | ||||||||||||||||
(3) Net of income tax expense of $37 million and $49 million for the three months and six months ended June 30, 2008, respectively (2007 - $15 million and $10 million recovery, respectively). | ||||||||||||||||
(4) Net of income tax recovery of $2 million and $11 million for the three months and six months ended June 30, 2008, respectively (2007 - $7 million and $5 million expense, respectively). | ||||||||||||||||
See accompanying notes to the consolidated financial statements. |
TRANSCANADA [31
SECOND QUARTER REPORT 2008
Consolidated Accumulated Other Comprehensive Income
(unaudited) (millions of dollars) | Currency Translation Adjustment | Cash Flow Hedges | Total | |||||||||
Balance at December 31, 2007 | (361 | ) | (12 | ) | (373 | ) | ||||||
Change in foreign currency translation gains and losses on investments in | ||||||||||||
foreign operations (1) | 39 | - | 39 | |||||||||
Change in gains and losses on hedges of investments in foreign operations (2) | (24 | ) | - | (24 | ) | |||||||
Change in gains and losses on derivative instruments designated as cash flow | ||||||||||||
hedges (3) | - | 33 | 33 | |||||||||
Reclassification to net income of gains and losses on derivative instruments | ||||||||||||
designated as cash flow hedges pertaining to prior periods (4)(5) | - | (18 | ) | (18 | ) | |||||||
Balance at June 30, 2008 | (346 | ) | 3 | (343 | ) | |||||||
Balance at December 31, 2006 | (90 | ) | - | (90 | ) | |||||||
Transition adjustment resulting from adopting new financial instruments standards (6) | - | (96 | ) | (96 | ) | |||||||
Change in foreign currency translation gains and losses on investments in | ||||||||||||
foreign operations (1) | (221 | ) | - | (221 | ) | |||||||
Change in gains and losses on hedges of investments in foreign operations (2) | 55 | - | 55 | |||||||||
Change in gains and losses on derivative instruments designated as cash flow | ||||||||||||
hedges (3) | - | (37 | ) | (37 | ) | |||||||
Reclassification to net income of gains and losses on derivative instruments | ||||||||||||
designated as cash flow hedges pertaining to prior periods (4) | - | 20 | 20 | |||||||||
Balance at June 30, 2007 | (256 | ) | (113 | ) | (369 | ) | ||||||
(1) Net of income tax recovery of $20 million for the six months ended June 30, 2008 (2007 - $56 million expense). | ||||||||||||
(2) Net of income tax recovery of $14 million for the six months ended June 30, 2008 (2007 - $28 million expense). | ||||||||||||
(3) Net of income tax expense of $49 million for the six months ended June 30, 2008 (2007 - $10 million recovery). | ||||||||||||
(4) Net of income tax recovery of $11 million for the six months ended June 30, 2008 (2007 - $5 million expense). | ||||||||||||
(5) The amount of gains and losses related to cash flow hedges reported in accumulated other comprehensive income that will be reclassified to net income in the next 12 months is estimated to be net gains of $10 million ($7 million net losses, net of tax). These estimates assume constant gas and power prices, interest rates and foreign exchange rates over time, however, the actual amounts that will be reclassified will vary based on changes in these factors. | ||||||||||||
(6) Net of income tax expense of $44 million. | ||||||||||||
See accompanying notes to the consolidated financial statements. |
TRANSCANADA [32
SECOND QUARTER REPORT 2008
Consolidated Shareholders’ Equity
(unaudited) | Six months ended June 30 | |||||||
(millions of dollars) | 2008 | 2007 | ||||||
Common Shares | ||||||||
Balance at beginning of period | 6,662 | 4,794 | ||||||
Shares issued under dividend reinvestment plan | 112 | 51 | ||||||
Proceeds from shares issued on exercise of stock options | 11 | 14 | ||||||
Proceeds from shares issued under public offering, net of issue costs | 1,235 | 1,683 | ||||||
Balance at end of period | 8,020 | 6,542 | ||||||
Contributed Surplus | ||||||||
Balance at beginning of period | 276 | 273 | ||||||
Issuance of stock options | 2 | 2 | ||||||
Balance at end of period | 278 | 275 | ||||||
Retained Earnings | ||||||||
Balance at beginning of period | 3,220 | 2,724 | ||||||
Transition adjustment resulting from adopting new financial | ||||||||
instruments accounting standards | - | 4 | ||||||
Net income | 773 | 522 | ||||||
Common share dividends | (403 | ) | (358 | ) | ||||
Balance at end of period | 3,590 | 2,892 | ||||||
Accumulated Other Comprehensive Income | ||||||||
Balance at beginning of period | (373 | ) | (90 | ) | ||||
Transition adjustment resulting from adopting new financial instruments standards | - | (96 | ) | |||||
Other comprehensive income | 30 | (183 | ) | |||||
Balance at end of period | (343 | ) | (369 | ) | ||||
Total Shareholders' Equity | 11,545 | 9,340 | ||||||
See accompanying notes to the consolidated financial statements. |
TRANSCANADA [33
SECOND QUARTER REPORT 2008
Notes to Consolidated Financial Statements
(Unaudited)
1. | Significant Accounting Policies |
The consolidated financial statements of TransCanada Corporation (TransCanada or the Company) have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). The accounting policies applied are consistent with those outlined in TransCanada's annual audited Consolidated Financial Statements for the year ended December 31, 2007. 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 2007 audited Consolidated Financial Statements included in TransCanada’s 2007 Annual Report. Amounts are stated in Canadian dollars unless otherwise indicated.
In Pipelines, which consists primarily of the Company's investments in regulated pipelines and regulated natural gas storage facilities, annual revenues and net income fluctuate over the long term based on regulators' decisions and negotiated settlements with shippers. Generally, quarter-over-quarter revenues and net income during any particular fiscal year remain relatively stable with fluctuations resulting from adjustments being recorded due to regulatory decisions and negotiated settlements with shippers, seasonal fluctuations in short-term throughput on U.S. pipelines, acquisitions and divestitures, and developments outside of the normal course of operations.
In Energy, which consists primarily of the Company’s investments in electrical power generation plants and non-regulated natural gas storage facilities, quarter-over-quarter revenues and net income are affected by seasonal weather conditions, customer demand, market prices, planned and unplanned plant outages, acquisitions and divestitures, and developments outside of the normal course of operations.
In preparing these financial statements, TransCanada is required to make estimates and assumptions that affect both the amount and timing of recording assets, liabilities, revenues and expenses since the determination of these items may be dependent on future events. The Company uses the most current information available and exercises careful judgement in making these estimates. In the opinion of management, these consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies.
2. | Changes in Accounting Policies |
Future Accounting Changes
International Financial Reporting Standards
The Canadian Institute of Chartered Accountants’ Accounting Standards Board (AcSB) announced that Canadian publicly accountable enterprises are required to adopt International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), effective January 1, 2011. In June 2008, the Canadian Securities Administrators (CSA) proposed that Canadian public companies which are also SEC registrants, such as TransCanada, could retain the option to prepare their financial statements under U.S. GAAP instead of IFRS. TransCanada is currently assessing its option to adopt IFRS as of January 1, 2011 and the impact that such a conversion would have on its accounting systems and financial statements. TransCanada’s conversion planning includes an analysis of project structure and governance, resourcing and training, analysis of key GAAP differences and a phased approach to assess accounting policies under IFRS.
TRANSCANADA [34
SECOND QUARTER REPORT 2008
Under existing Canadian GAAP, TransCanada follows specific accounting policies unique to a rate-regulated business. TransCanada is actively monitoring ongoing discussions and developments of the IASB and its International Financial Reporting Interpretations Committee regarding potential future guidance to clarify the applicability of certain aspects of rate-regulated accounting under IFRS.
3. | Segmented Information |
Three months ended June 30 | Pipelines | Energy | Corporate | Total | ||||||||||||||||||||||||||||
(unaudited - millions of dollars) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||||||||
Revenues | 1,100 | 1,228 | 917 | 980 | - | - | 2,017 | 2,208 | ||||||||||||||||||||||||
Plant operating costs and other | (415 | ) | (417 | ) | (316 | ) | (343 | ) | (2 | ) | (1 | ) | (733 | ) | (761 | ) | ||||||||||||||||
Commodity purchases resold | - | (65 | ) | (347 | ) | (458 | ) | - | - | (347 | ) | (523 | ) | |||||||||||||||||||
Depreciation | (257 | ) | (260 | ) | (44 | ) | (40 | ) | - | - | (301 | ) | (300 | ) | ||||||||||||||||||
428 | 486 | 210 | 139 | (2 | ) | (1 | ) | 636 | 624 | |||||||||||||||||||||||
Financial charges and non-controlling interests | (169 | ) | (206 | ) | - | - | (34 | ) | (78 | ) | (203 | ) | (284 | ) | ||||||||||||||||||
Financial charges of joint ventures | (11 | ) | (13 | ) | (6 | ) | (6 | ) | - | - | (17 | ) | (19 | ) | ||||||||||||||||||
Interest income and other | 15 | 16 | 3 | 3 | 16 | 29 | 34 | 48 | ||||||||||||||||||||||||
Income taxes | (105 | ) | (117 | ) | (56 | ) | (42 | ) | 35 | 47 | (126 | ) | (112 | ) | ||||||||||||||||||
Net Income | 158 | 166 | 151 | 94 | 15 | (3 | ) | 324 | 257 | |||||||||||||||||||||||
Six months ended June 30 | Pipelines | Energy | Corporate | Total | ||||||||||||||||||||||||||||
(unaudited - millions of dollars) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||||||||
Revenues | 2,276 | 2,352 | 1,874 | 2,100 | - | - | 4,150 | 4,452 | ||||||||||||||||||||||||
Plant operating costs and other | (814 | ) | (800 | ) | (614 | ) | (690 | ) | (3 | ) | (3 | ) | (1,431 | ) | (1,493 | ) | ||||||||||||||||
Commodity purchases resold | - | (65 | ) | (757 | ) | (1,029 | ) | - | - | (757 | ) | (1,094 | ) | |||||||||||||||||||
Depreciation | (511 | ) | (511 | ) | (86 | ) | (79 | ) | - | - | (597 | ) | (590 | ) | ||||||||||||||||||
951 | 976 | 417 | 302 | (3 | ) | (3 | ) | 1,365 | 1,275 | |||||||||||||||||||||||
Financial charges and non-controlling interests | (404 | ) | (423 | ) | - | 1 | (88 | ) | (127 | ) | (492 | ) | (549 | ) | ||||||||||||||||||
Financial charges of joint ventures | (22 | ) | (29 | ) | (11 | ) | (11 | ) | - | - | (33 | ) | (40 | ) | ||||||||||||||||||
Interest income and other | 47 | 29 | 4 | 6 | 22 | 44 | 73 | 79 | ||||||||||||||||||||||||
Calpine bankruptcy settlements | 279 | - | - | - | - | - | 279 | - | ||||||||||||||||||||||||
Writedown of Broadwater LNG project costs | - | - | (41 | ) | - | - | - | (41 | ) | - | ||||||||||||||||||||||
Income taxes | (332 | ) | (232 | ) | (108 | ) | (98 | ) | 62 | 87 | (378 | ) | (243 | ) | ||||||||||||||||||
Net Income | 519 | 321 | 261 | 200 | (7 | ) | 1 | 773 | 522 |
Total Assets | ||||
(unaudited - millions of dollars) | June 30, 2008 | December 31, 2007 | ||
Pipelines | 22,510 | 22,024 | ||
Energy | 7,698 | 7,037 | ||
Corporate | 2,647 | 1,269 | ||
32,855 | 30,330 |
4. | Share Capital |
On July 2, 2008, TransCanada filed a final short form base shelf prospectus with securities regulators in Canada and the U.S. to allow for the offering of up to $3.0 billion of common shares, preferred shares and/or subscription receipts in Canada and the U.S. until August 2010. The filing was done in normal course similar to the filing of debt shelf prospectuses in Canada and the U.S. so as to expedite access to the capital markets depending on TransCanada’s assessment of its requirements for funding and general market conditions. This new shelf prospectus replaces the previous $3.0 billion short form shelf prospectus filed in January 2007 under which the Company had issued approximately $3.0 billion of common shares.
TRANSCANADA [35
SECOND QUARTER REPORT 2008
On May 5, 2008, TransCanada entered into an agreement with a syndicate of underwriters under which the underwriters agreed to purchase 30,200,000 common shares from TransCanada and sell them to the public at a price of $36.50 each. The underwriters also fully exercised an over-allotment option which they were granted for an additional 4,530,000 common shares at the same price. The entire issue of the 34,730,000 common shares closed on May 13, 2008 and resulted in gross proceeds to TransCanada of approximately $1.27 billion. These proceeds will be used to partially fund acquisitions and capital projects of the Company, including the acquisition of Ravenswood and the construction of Keystone, and for general corporate purposes.
In the three and six months ended June 30, 2008, TransCanada issued 1.7 million and 3.1 million common shares, respectively, under its Dividend Reinvestment and Share Purchase Plan (DRP). In accordance with the DRP, dividends were paid with common shares issued from treasury in lieu of making cash dividend payments totalling $58 million and $112 million. In the three and six months ended June 30, 2007, TransCanada issued 1.3 million common shares under its DRP, in lieu of making cash dividend payments totalling $51 million.
5. | Long-Term Debt |
On June 27, 2008, TransCanada executed an agreement with a syndicate of banks for a US$1.5 billion, committed, unsecured, one-year bridge loan facility, which will be at a floating interest rate based on the London Interbank Offered Rate. The facility is extendible at the option of the Company for an additional six-month term and is available to fund a portion of the pending Ravenswood acquisition. No funds have been drawn on this facility at this time.
In the three and six months ended June 30, 2008, the Company capitalized interest related to capital projects of $33 million and $59 million, respectively.
6. | Financial Instruments and Risk Management |
Natural Gas Inventory
At June 30, 2008, $240 million of proprietary natural gas inventory held in storage was included in Inventories (December 31, 2007 - $190 million). Effective April 1, 2007, TransCanada began valuing its proprietary natural gas inventory at fair value, as measured by the one-month forward price for natural gas less selling costs. The Company did not have any proprietary natural gas inventory prior to April 1, 2007. The change in fair value of proprietary natural gas inventory in the three and six months ended June 30, 2008 resulted in net unrealized gains of $42 million and $102 million, respectively, which were recorded as an increase to Revenues and Inventory (three and six months ended June 30, 2007 - net unrealized losses of $23 million). The net change in fair value of natural gas forward purchase and sales contracts in the three and six months ended June 30, 2008 resulted in net unrealized losses of $30 million and $107 million, respectively (three and six months ended June 30, 2007 - net unrealized gains of $19 million and $16 million, respectively), which were included in Revenues.
TRANSCANADA [36
SECOND QUARTER REPORT 2008
Net Investment in Self-Sustaining Foreign Operations
Information for the derivatives used to hedge the Company’s net investment in its foreign operations is as follows:
Derivatives Hedging Net Investment in Foreign Operations | ||||||||||
Asset/(Liability) | ||||||||||
(unaudited) | ||||||||||
(millions of dollars) | June 30, 2008 | December 31, 2007 | ||||||||
Notional or | Notional or | |||||||||
Fair | Principal | Fair | Principal | |||||||
Value(1) | Amount | Value(1) | Amount | |||||||
Derivative financial instruments in hedging relationships | ||||||||||
U.S. dollar cross-currency swaps | ||||||||||
(maturing 2009 to 2014) | 75 | U.S. 1,050 | 77 | U.S. 350 | ||||||
U.S. dollar forward foreign exchange contracts | ||||||||||
(maturing 2008) | (5 | ) | U.S. 730 | (4 | ) | U.S. 150 | ||||
U.S. dollar options | ||||||||||
(maturing 2008) | - | U.S. 100 | 3 | U.S. 600 | ||||||
70 | U.S. 1,880 | 76 | U.S. 1,100 | |||||||
(1) Fair values are equal to carrying values. |
TRANSCANADA [37
SECOND QUARTER REPORT 2008
Derivative Financial Instruments Summary
Information for the Company’s derivative financial instruments is as follows:
June 30, 2008 | |||||||||
(all amounts in millions unless otherwise indicated) | Power | Natural Gas | Interest | ||||||
Derivative Financial Instruments Held for Trading | |||||||||
Fair Values(1) | |||||||||
Assets | $ | 104 | $ | 169 | $ | 26 | |||
Liabilities | $ | (103) | $ | (258) | $ | (26) | |||
Notional Values | |||||||||
Volumes(2) | |||||||||
Purchases | 2,955 | 48 | - | ||||||
Sales | 3,301 | 65 | - | ||||||
Canadian dollars | - | - | 857 | ||||||
U.S. dollars | - | - | U.S. 1,150 | ||||||
Unrealized (losses)/gains in the period(3) | |||||||||
Three months ended June 30, 2008 | $ | (3) | $ | 7 | $ | 2 | |||
Six months ended June 30, 2008 | $ | (5) | $ | (11) | $ | (2) | |||
Realized gains/(losses) in the period(3) | |||||||||
Three months ended June 30, 2008 | $ | 7 | $ | (20) | $ | 7 | |||
Six months ended June 30, 2008 | $ | 9 | $ | 5 | $ | 10 | |||
Maturity dates | 2008-2014 | 2008-2010 | 2008-2018 | ||||||
Derivative Financial Instruments in Hedging Relationships(4)(5) | |||||||||
Fair Values(1) | |||||||||
Assets | $ | 250 | $ | 80 | $ | 3 | |||
Liabilities | $ | (236) | $ | - | $ | (17) | |||
Notional Values | |||||||||
Volumes(2) | |||||||||
Purchases | 6,126 | 23 | - | ||||||
Sales | 17,727 | - | - | ||||||
Canadian dollars | - | - | 50 | ||||||
U.S. dollars | - | - | U.S. 925 | ||||||
Realized (losses)/gains in the period(3) | |||||||||
Three months ended June 30, 2008 | $ | (37) | $ | 11 | $ | (3) | |||
Six months ended June 30, 2008 | $ | (38) | $ | 19 | $ | (2) | |||
Maturity dates | 2008-2014 | 2008-2011 | 2009-2013 |
(1) Fair value is equal to the carrying value of these derivatives. | |||||||||
(2) Volumes for power and natural gas derivatives are in gigawatt hours (Gwh) and billion cubic feet (Bcf), respectively. | |||||||||
(3) All realized and unrealized gains and losses are included in Net Income. Realized gains and losses are included in Net Income after the financial instrument has been settled. | |||||||||
(4) All hedging relationships are designated as cash flow hedges except for $2 million (December 31, 2007 - $2 million) of interest-rate derivative financial instruments designated as fair value hedges. |
(5) Net Income for the three and six months ended June 30, 2008 included losses of $3 million and $4 million, respectively (three and six months ended June 30, 2007 - nil and $3 million gain, respectively) for the changes in fair value of power and natural gas cash flow hedges that were ineffective in offsetting the change in fair value of their related underlying positions. Net Income for the three and six months ended June 30, 2007 included nil and a $4 million loss, respectively, for the changes in fair value of an interest-rate cash flow hedge that was reclassified as a result of discontinuance of cash flow hedge accounting. Cash flow hedge accounting was discontinued when the anticipated transaction was not probable of occurring by the end of the originally specified time period. There were no gains or losses included in Net Income for the three and six months ended June 30, 2008 for discontinued cash flow hedges. |
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SECOND QUARTER REPORT 2008
2007 | |||||||||
(all amounts in millions unless otherwise indicated) | Power | Natural Gas | Interest | ||||||
Derivative Financial Instruments Held for Trading | |||||||||
Fair Values(1)(4) | |||||||||
Assets | $ | 55 | $ | 43 | $ | 23 | |||
Liabilities | $ | (44) | $ | (19) | $ | (18) | |||
Notional Values(4) | |||||||||
Volumes(2) | |||||||||
Purchases | 3,774 | 47 | - | ||||||
Sales | 4,469 | 64 | - | ||||||
Canadian dollars | - | - | 615 | ||||||
U.S. dollars | - | - | U.S. 550 | ||||||
Unrealized gains/(losses) in the period(3) | |||||||||
Three months ended June 30, 2007 | $ | 5 | $ | 1 | $ | (2) | |||
Six months ended June 30, 2007 | $ | 9 | $ | (16) | $ | 1 | |||
Realized (losses)/gains in the period(3) | |||||||||
Three months ended June 30, 2007 | $ | (3) | $ | 6 | $ | 1 | |||
Six months ended June 30, 2007 | $ | (8) | $ | 18 | $ | 1 | |||
Maturity dates (4) | 2008 - 2012 | 2008 - 2010 | 2008 - 2016 | ||||||
Derivative Financial Instruments in Hedging Relationships(5)(6) | |||||||||
Fair Values(1)(4) | |||||||||
Assets | $ | 135 | $ | 19 | $ | 2 | |||
Liabilities | $ | (104) | $ | (7) | $ | (16) | |||
Notional Values(4) | |||||||||
Volumes(2) | |||||||||
Purchases | 7,362 | 28 | - | ||||||
Sales | 16,367 | 4 | - | ||||||
Canadian dollars | - | - | 150 | ||||||
U.S. dollars | - | - | U.S. 875 | ||||||
Realized gains/(losses) in the period(3) | |||||||||
Three months ended June 30, 2007 | $ | 16 | $ | (1) | $ | 1 | |||
Six months ended June 30, 2007 | $ | 13 | $ | (3) | $ | 1 | |||
Maturity dates(4) | 2008 - 2013 | 2008 - 2010 | 2008 - 2013 | ||||||
(1) Fair value is equal to the carrying value of these derivatives. | |||||||||
(2) Volumes for power and natural gas derivatives are in Gwh and Bcf, respectively. | |||||||||
(3) All realized and unrealized gains and losses are included in Net Income. Realized gains and losses are included in Net Income after the financial instrument has been settled. | |||||||||
(4) As at December 31, 2007. | |||||||||
(5) All hedging relationships are designated as cash flow hedges except for $2 million (December 31, 2007 - $2 million) of interest-rate derivative financial instruments designated as fair value hedges. | |||||||||
(6) Net Income for the three and six months ended June 30, 2008 included losses of $3 million and $4 million, respectively (three and six months ended June 30, 2007 - nil and $3 million gain, respectively) for the changes in fair value of power and natural gas cash flow hedges that were ineffective in offsetting the change in fair value of their related underlying positions. Net Income for the three and six months ended June 30, 2007 included nil and a $4 million loss, respectively, for the changes in fair value of an interest-rate cash flow hedge that was reclassified as a result of discontinuance of cash flow hedge accounting. Cash flow hedge accounting was discontinued when the anticipated transaction was not probable of occurring by the end of the originally specified time period. There were no gains or losses included in Net Income for the three and six months ended June 30, 2008 for discontinued cash flow hedges. |
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SECOND QUARTER REPORT 2008
7. Employee Future Benefits
The net benefit plan expense for the Company’s defined benefit pension plans and other post-employment benefit plans for the three and six months ended June 30, 2008 is as follows:
Three months ended June 30 | Pension Benefit Plans | Other Benefit Plans | ||||||||||||||
(unaudited - millions of dollars) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Current service cost | 12 | 11 | 1 | 1 | ||||||||||||
Interest cost | 20 | 18 | 2 | 2 | ||||||||||||
Expected return on plan assets | (23 | ) | (20 | ) | (1 | ) | (1 | ) | ||||||||
Amortization of transitional obligation related to | - | |||||||||||||||
regulated business | - | - | 1 | - | ||||||||||||
Amortization of net actuarial loss | 5 | 6 | 1 | - | ||||||||||||
Amortization of past service costs | 1 | 1 | - | (1 | ) | |||||||||||
Net benefit cost recognized | 15 | 16 | 4 | 1 | ||||||||||||
Six months ended June 30 | Pension Benefit Plans | Other Benefit Plans | ||||||||||||||
(unaudited - millions of dollars) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Current service cost | 25 | 22 | 1 | 1 | ||||||||||||
Interest cost | 39 | 35 | 4 | 3 | ||||||||||||
Expected return on plan assets | (46 | ) | (39 | ) | (1 | ) | (1 | ) | ||||||||
Amortization of transitional obligation related to | ||||||||||||||||
regulated business | - | - | 1 | 1 | ||||||||||||
Amortization of net actuarial loss | 9 | 12 | 1 | 1 | ||||||||||||
Amortization of past service costs | 2 | 2 | - | (1 | ) | |||||||||||
Net benefit cost recognized | 29 | 32 | 6 | 4 |
8. | Calpine Bankruptcy Settlements |
Certain subsidiaries of Calpine Corporation (Calpine) filed for bankruptcy protection in both Canada and the U.S. in 2005. Gas Transmission Northwest Corporation (GTNC) and Portland reached agreements with Calpine for allowed unsecured claims in the Calpine bankruptcy. In February 2008, GTNC and Portland received initial distributions of 9.4 million shares and 6.1 million shares, respectively, which represented approximately 85 per cent of their agreed-for claims. These shares were subsequently sold into the open market and resulted in total pre-tax income of $279 million.
9. | Writedown of Development Costs |
On March 24, 2008, the U.S. Federal Energy Regulatory Committee authorized the construction and operation of the Broadwater liquefied natural gas (LNG) project, subject to the conditions reflected in the authorization. On April 10, 2008, the New York State Department of State rejected a proposal to construct the Broadwater facility. As a result of this unfavourable decision, TransCanada wrote down $27 million after tax ($41 million pre-tax) of costs that had been previously capitalized for the Broadwater LNG project to March 31, 2008.
10. | Commitments and Contingencies |
Commitments
On March 31, 2008, TransCanada entered into an agreement with National Grid plc to acquire, for approximately US$2.8 billion plus closing adjustments, 100 per cent of KeySpan–Ravenswood, LLC, which owns the Ravenswood Generating Facility in Queens, New York. The acquisition is expected to be financed in a manner that is consistent with TransCanada’s current capital structure. In addition, as at June 30, 2008 TransCanada has entered into agreements to purchase construction materials and services for the Kibby Wind and Coolidge power projects, totalling approximately $625 million.
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SECOND QUARTER REPORT 2008
Contingencies
On April 3, 2008, the Ontario Court of Appeal dismissed an appeal filed by the Canadian Alliance of Pipeline Landowners’ Associations (CAPLA). CAPLA filed the appeal as a result of a decision by the Ontario Superior Court in November 2006 to dismiss CAPLA’s class action lawsuit against TransCanada and Enbridge Inc. for damages alleged to have arisen from the creation of a control zone within 30 metres of a pipeline pursuant to Section 112 of the National Energy Board Act. The Ontario Court of Appeal’s decision is final and binding as CAPLA did not seek any further appeal within the time frame allowed.
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/Myles Dougan/Terry Hook at (403) 920-7911. The investor fax line is (403) 920-2457. Media Relations: Cecily Dobson/Shela Shapiro at (403) 920-7859 or 1-800-608-7859. Visit the TransCanada website at: http://www.transcanada.com. |