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Consolidated Income
| Three months ended March 31 | ||||||
---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||
| (unaudited) (millions of dollars except per share amounts) | ||||||
Revenues | 1,305 | 1,266 | |||||
Operating Expenses | |||||||
Cost of sales | 160 | 166 | |||||
Other costs and expenses | 424 | 368 | |||||
Depreciation | 250 | 232 | |||||
834 | 766 | ||||||
Operating Income | 471 | 500 | |||||
Other Expenses/(Income) | |||||||
Financial charges | 207 | 207 | |||||
Financial charges of joint ventures | 16 | 14 | |||||
Equity income | (41 | ) | (58 | ) | |||
Interest income and other | (24 | ) | (15 | ) | |||
Gain related to PipeLines LP | (80 | ) | — | ||||
78 | 148 | ||||||
Income before Income Taxes and Non-Controlling Interests | 393 | 352 | |||||
Income Taxes | |||||||
Current | 161 | 103 | |||||
Future | (12 | ) | 23 | ||||
149 | 126 | ||||||
Non-Controlling Interests | |||||||
Preferred share dividends | 6 | 6 | |||||
Other | 6 | 6 | |||||
12 | 12 | ||||||
Net Income | 232 | 214 | |||||
Net Income Per Share — Basic and Diluted | $ | 0.48 | $ | 0.44 | |||
Average Shares Outstanding — Basic (millions) | 485.2 | 483.4 | |||||
Average Shares Outstanding — Diluted (millions) | 487.9 | 486.1 | |||||
See accompanying notes to the consolidated financial statements.
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Consolidated Cash Flows
| Three months ended March 31 | ||||
---|---|---|---|---|---|
| 2005 | 2004 | |||
| (unaudited) (millions of dollars) | ||||
Cash Generated From Operations | |||||
Net income | 232 | 214 | |||
Depreciation | 250 | 232 | |||
Gain related to PipeLines LP, net of current tax expense (Note 5) | (30 | ) | — | ||
Equity income in excess of distributions received | (34 | ) | (51 | ) | |
Pension funding in excess of expense | (7 | ) | (12 | ) | |
Future income taxes | (12 | ) | 23 | ||
Non-controlling interests | 12 | 12 | |||
Other | (4 | ) | (3 | ) | |
Funds generated from operations | 407 | 415 | |||
Increase in operating working capital | (46 | ) | (42 | ) | |
Net cash provided by continuing operations | 361 | 373 | |||
Net cash provided by/(used in) discontinued operations | 4 | (2 | ) | ||
365 | 371 | ||||
Investing Activities | |||||
Capital expenditures | (108 | ) | (101 | ) | |
Disposition of assets | 151 | — | |||
Deferred amounts and other | (58 | ) | (47 | ) | |
Net cash used in investing activities | (15 | ) | (148 | ) | |
Financing Activities | |||||
Dividends | (146 | ) | (140 | ) | |
Notes payable issued/(repaid), net | 244 | (229 | ) | ||
Long-term debt issued | 300 | 665 | |||
Reduction of long-term debt | (321 | ) | (476 | ) | |
Non-recourse debt of joint ventures issued | 5 | 6 | |||
Reduction of non-recourse debt of joint ventures | (7 | ) | (9 | ) | |
Common shares issued | 11 | 13 | |||
Net cash provided by/(used in) financing activities | 86 | (170 | ) | ||
Effect of Foreign Exchange Rate Changes on Cash and Short-Term Investments | 2 | 4 | |||
Increase in Cash and Short-Term Investments | 438 | 57 | |||
Cash and Short-Term Investments | |||||
Beginning of period | 188 | 338 | |||
Cash and Short-Term Investments | |||||
End of period | 626 | 395 | |||
Supplementary Cash Flow Information | |||||
Income taxes paid | 192 | 161 | |||
Interest paid | 190 | 172 | |||
See accompanying notes to the consolidated financial statements.
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Consolidated Balance Sheet
| March 31, 2005 | December 31, 2004 | |||
---|---|---|---|---|---|
| (unaudited) | | |||
| (millions of dollars) | ||||
ASSETS | |||||
Current Assets | |||||
Cash and short-term investments | 626 | 188 | |||
Accounts receivable | 539 | 627 | |||
Inventories | 170 | 174 | |||
Other | 142 | 120 | |||
1,477 | 1,109 | ||||
Long-Term Investments | 833 | 840 | |||
Plant, Property and Equipment | 18,594 | 18,704 | |||
Other Assets | 1,526 | 1,459 | |||
22,430 | 22,112 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
Current Liabilities | |||||
Notes payable | 790 | 546 | |||
Accounts payable | 1,039 | 1,135 | |||
Accrued interest | 234 | 214 | |||
Current portion of long-term debt | 773 | 766 | |||
Current portion of non-recourse debt of joint ventures | 81 | 83 | |||
2,917 | 2,744 | ||||
Deferred Amounts | 848 | 783 | |||
Long-Term Debt | 9,703 | 9,713 | |||
Future Income Taxes | 491 | 509 | |||
Non-Recourse Debt of Joint Ventures | 779 | 779 | |||
Preferred Securities | 556 | 554 | |||
15,294 | 15,082 | ||||
Non-Controlling Interests | |||||
Preferred shares of subsidiary | 389 | 389 | |||
Other | 81 | 76 | |||
470 | 465 | ||||
Shareholders' Equity | |||||
Common shares | 4,722 | 4,711 | |||
Contributed surplus | 271 | 270 | |||
Retained earnings | 1,739 | 1,655 | |||
Foreign exchange adjustment | (66 | ) | (71 | ) | |
6,666 | 6,565 | ||||
22,430 | 22,112 | ||||
See accompanying notes to the consolidated financial statements.
22
Consolidated Retained Earnings
| Three months ended March 31 | ||||
---|---|---|---|---|---|
| 2005 | 2004 | |||
| (unaudited) (millions of dollars) | ||||
Balance at beginning of period | 1,655 | 1,185 | |||
Net income | 232 | 214 | |||
Common share dividends | (148 | ) | (140 | ) | |
1,739 | 1,259 | ||||
See accompanying notes to the consolidated financial statements.
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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 financial statements for the year ended December 31, 2004 except as stated below. 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's 2004 Annual Report. Amounts are stated in Canadian dollars unless otherwise indicated. Certain comparative figures have been reclassified to conform with the current period's presentation.
Since a determination of many assets, liabilities, revenues and expenses is dependent upon future events, the preparation of these consolidated financial statements requires the use of estimates and assumptions. In the opinion of Management, these consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the company's significant accounting policies.
2. Accounting Change
Financial Instruments — Disclosure and Presentation
Effective January 1, 2005, the company adopted the provisions of the Canadian Institute of Chartered Accountants amendment to the existing Handbook Section "Financial Instruments — Disclosure and Presentation" which provides guidance for classifying certain financial instruments that embody obligations that may be settled by issuance of the issuer's equity shares as debt when the instrument does not establish an ownership relationship. In accordance with this amendment, TransCanada reclassified the non-controlling interest component of preferred securities as long-term debt.
This accounting change was applied retroactively with restatement of prior periods. The impact of this change on TransCanada's net income in first quarter 2005 and prior periods was nil.
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The impact of the accounting change on the company's consolidated balance sheet as at December 31, 2004 is as follows.
| Increase/(Decrease) | |||
---|---|---|---|---|
| (unaudited — millions of dollars) | |||
Deferred Amounts(1) | 135 | |||
Preferred Securities | 535 | |||
Non-Controlling Interest | ||||
Preferred securities of subsidiary | (670 | ) | ||
Total Liabilities and Shareholders' Equity | — | |||
- (1)
- Regulatory deferral.
3. Segmented Information
| Three months ended March 31 (unaudited — millions of dollars) | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gas Transmission | Power | Corporate | Total | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||
Revenues | 995 | 949 | 310 | 317 | — | — | 1,305 | 1,266 | |||||||||
Cost of sales | — | — | (160 | ) | (166 | ) | — | — | (160 | ) | (166 | ) | |||||
Other costs and expenses | (306 | ) | (285 | ) | (116 | ) | (81 | ) | (2 | ) | (2 | ) | (424 | ) | (368 | ) | |
Depreciation | (232 | ) | (212 | ) | (18 | ) | (20 | ) | — | — | (250 | ) | (232 | ) | |||
Operating income/(loss) | 457 | 452 | 16 | 50 | (2 | ) | (2 | ) | 471 | 500 | |||||||
Financial charges and non-controlling interests | (187 | ) | (196 | ) | (2 | ) | (2 | ) | (30 | ) | (21 | ) | (219 | ) | (219 | ) | |
Financial charges of joint ventures | (14 | ) | (14 | ) | (2 | ) | — | — | — | (16 | ) | (14 | ) | ||||
Equity income | 11 | 10 | 30 | 48 | — | — | 41 | 58 | |||||||||
Interest income and other | 14 | 3 | 3 | 4 | 7 | 8 | 24 | 15 | |||||||||
Gain related to PipeLines LP | 80 | — | — | — | — | — | 80 | — | |||||||||
Income taxes | (150 | ) | (106 | ) | (15 | ) | (35 | ) | 16 | 15 | (149 | ) | (126 | ) | |||
Net Income | 211 | 149 | 30 | 65 | (9 | ) | — | 232 | 214 | ||||||||
Total Assets
| March 31, 2005 | December 31, 2004 | ||
---|---|---|---|---|
| (unaudited) | | ||
| (millions of dollars) | |||
Gas Transmission | 18,144 | 18,410 | ||
Power | 2,915 | 2,802 | ||
Corporate | 1,367 | 893 | ||
Continuing Operations | 22,426 | 22,105 | ||
Discontinued Operations | 4 | 7 | ||
22,430 | 22,112 | |||
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4. Risk Management and Financial Instruments
The following represents the material changes to the company's risk management and financial instruments since December 31, 2004.
Energy Price Risk Management
The company executes power, natural gas and heat rate derivatives for overall management of its asset portfolio. Heat rate contracts are contracts for the sale or purchase of power that are priced based on a natural gas index. The fair values and notional volumes of the swap, option, future and heat rate contracts are shown in the tables below. In accordance with the company's accounting policy, each of the derivatives in the table below is recorded on the balance sheet at its fair value at March 31, 2005 and December 31, 2004.
| | March 31, 2005 (unaudited) | | |||||
---|---|---|---|---|---|---|---|---|
| | December 31, 2004 | ||||||
Asset/(Liability) (millions of dollars) | Accounting Treatment | |||||||
Fair Value | Fair Value | |||||||
Power — swaps | ||||||||
(maturing 2005 to 2011) | Hedge | (35 | ) | 7 | ||||
(maturing 2005) | Non-hedge | 2 | (2 | ) | ||||
Gas — swaps, futures and options | ||||||||
(maturing 2005 to 2016) | Hedge | (24 | ) | (39 | ) | |||
(maturing 2005) | Non-hedge | (5 | ) | (2 | ) | |||
Heat rate contracts | ||||||||
(maturing 2005 to 2006) | Hedge | — | (1 | ) | ||||
| | March 31, 2005 (unaudited) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | Power (GWh) | Gas (Bcf) | ||||||||
| Accounting Treatment | ||||||||||
| Purchases | Sales | Purchases | Sales | |||||||
Notional Volumes | |||||||||||
Power — swaps | |||||||||||
(maturing 2005 to 2011) | Hedge | 1,752 | 7,237 | — | — | ||||||
(maturing 2005) | Non-hedge | 330 | — | — | — | ||||||
Gas — swaps, futures and options | |||||||||||
(maturing 2005 to 2016) | Hedge | — | — | 78 | 74 | ||||||
(maturing 2005) | Non-hedge | — | — | 3 | 6 | ||||||
Heat rate contracts | |||||||||||
(maturing 2005 to 2006) | Hedge | — | 76 | — | — | ||||||
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| | December 31, 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | Power (GWh) | Gas (Bcf) | ||||||||
| Accounting Treatment | ||||||||||
| Purchases | Sales | Purchases | Sales | |||||||
Notional Volumes | |||||||||||
Power — swaps | Hedge | 3,314 | 7,029 | — | — | ||||||
Non-hedge | 438 | — | — | — | |||||||
Gas — swaps, futures and options | Hedge | — | — | 80 | 84 | ||||||
Non-hedge | — | — | 5 | 8 | |||||||
Heat rate contracts | Hedge | — | 229 | 2 | — | ||||||
5. Disposition
In March 2005, TransCanada sold 3.5 million common units of TC PipeLines, LP (PipeLines LP) for US$37.04 per unit, resulting in net proceeds to the company of approximately $151 million and an after-tax gain of approximately $48 million. The net gain was recorded in the Gas Transmission segment and the company recorded a $32 million tax charge, including $50 million of current income tax expense, on this transaction. In April 2005, underwriters purchased an additional 74,200 common units, exercising, in part, their option to purchase up to 525,000 additional units on the same terms and conditions as the 3.5 million common units already sold. PipeLines LP did not receive any proceeds from the sale of the common units. Subsequent to this transaction and the underwriter's exercise of their option, TransCanada continues to own a 13.4 per cent interest in PipeLines LP represented by the general partner interest of 2.0 per cent as well as an 11.4 per cent limited partner interest.
6. 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 months ended March 31 is as follows.
Three months ended March 31 (unaudited — millions of dollars) | |||||||||
---|---|---|---|---|---|---|---|---|---|
| Pension Benefit Plans | Other Benefit Plans | |||||||
| 2005 | 2004 | 2005 | 2004 | |||||
Current service cost | 7 | 7 | — | — | |||||
Interest cost | 16 | 14 | 1 | 1 | |||||
Expected return on plan assets | (16 | ) | (14 | ) | — | — | |||
regulated business | — | — | 1 | 1 | |||||
Amortization of net actuarial loss | 4 | 3 | 1 | 1 | |||||
Amortization of past service costs | 1 | 1 | — | — | |||||
Net benefit cost recognized | 12 | 11 | 3 | 3 | |||||
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 at (403) 920-7911. The investor fax line is (403) 920-2457. Media Relations: Hejdi Feick/Kurt Kadatz at (403) 920-7859
Visit TransCanada's Internet site at: http://www.transcanada.com
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)