EXHIBIT 4
TRANSCANADA PIPELINES LIMITED
SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP (UNAUDITED)
NET INCOME RECONCILIATION
NINE MONTHS ENDED SEPTEMBER 30 (MILLIONS OF DOLLARS) 2003 2002
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Net income from continuing operations in accordance with Canadian GAAP 651 610
U.S. GAAP adjustments
Preferred securities charges(1) (41) (43)
Tax impact of preferred securities charges 15 17
Unrealized (loss)/gain on foreign exchange and interest rate derivatives(2) (6) 31
Tax impact of (loss)/gain on foreign exchange and interest rate derivatives 2 (12)
Unrealized gain/(loss) on energy trading contracts(3) 14 (14)
Tax impact of unrealized gain/(loss) on energy trading contracts (5) 6
Equity loss(2)(4) (12) -
Tax impact of equity loss 4 -
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Income from continuing operations in accordance with U.S. GAAP 622 595
Net income from discontinued operations in accordance with U.S. GAAP 50 -
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Income before cumulative effect of the application of EITF 02-3 in accordance with
U.S. GAAP 672 595
Cumulative effect of the application of EITF 02-3, net of tax(3) (13) -
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Net income in accordance with U.S. GAAP 659 595
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(1) Under U.S. GAAP, the financial charges related to preferred securities are
recognized as an expense, rather than dividends.
(2) Under the provisions of Statement of Financial Accounting Standards (SFAS)
No. 133 "Accounting for Derivatives and Hedging Activities", all
derivatives are recognized as assets and liabilities on the balance sheet
and measured at fair value. For derivatives designated as fair value
hedges, changes in the fair value are recognized in earnings together with
an equal or lesser amount of changes in the fair value of the hedged item
attributable to the hedged risk. For derivatives designated as cash flow
hedges, changes in the fair value of the derivatives that are effective in
offsetting the hedged risk are recognized in other comprehensive income
until the hedged item is recognized in earnings. Any ineffective portion of
the change in fair value is recognized in earnings each period.
(3) Under U.S. GAAP, energy trading contracts are measured at fair value
determined as at the balance sheet date. In 2002, TransCanada PipeLines
Limited (TCPL or the Company) adopted the transitional provisions of FASB
Emerging Issues Task Force (EITF) 02-3, "Accounting for Contracts Involved
in Energy Trading and Risk Management Activities" whereby the Company is
netting all revenues and expenses related to derivative energy trading
contracts. This accounting change was applied retroactively with
reclassification of prior periods. Effective January 1, 2003, the Company
fully adopted EITF 02-3. Certain of the energy trading derivatives are
accounted for as hedges under Canadian GAAP but not under U.S. GAAP. These
derivatives as well as other derivatives held for trading purposes are
measured at fair value and accounted for under the provisions of SFAS No.
133. The Company's energy trading contracts that are not derivatives are
not subject to mark-to-market accounting. This accounting change was
effected through a cumulative adjustment in the current period income with
no restatement of prior periods.
(4) Under Canadian GAAP, pre-operating costs incurred during the commissioning
phase of a new project are deferred until commercial production levels are
achieved. After such time, those costs are amortized over the estimated
life of the project. Under U.S. GAAP, such costs are expensed as incurred.
Certain start-up costs incurred by Bruce Power L.P. (an equity investment)
are required to be expensed under U.S. GAAP.
CONDENSED STATEMENT OF CONSOLIDATED INCOME IN ACCORDANCE WITH U.S. GAAP (6)
NINE MONTHS ENDED SEPTEMBER 30 (MILLIONS OF DOLLARS) 2003 2002
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Revenues(3) 3,692 3,475
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Cost of sales(3) 465 402
Other costs and expenses 1,239 1,122
Depreciation 610 544
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2,314 2,068
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Operating income 1,378 1,407
Other (income)/expenses
Equity income(2)(4)(6) (285) (199)
Other expenses(1)(2)(5) 630 633
Income taxes 411 378
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756 812
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Income from continuing operations in accordance with U.S. GAAP 622 595
Net income from discontinued operations in accordance with U.S. GAAP 50 -
----------- -----------
Income before cumulative effect of the application of EITF 02-3 in accordance
with U.S. GAAP 672 595
Cumulative effect of the application of EITF 02-3, net of tax(3) (13) -
----------- -----------
Net income in accordance with U.S. GAAP 659 595
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COMPREHENSIVE INCOME IN ACCORDANCE WITH U.S. GAAP
NINE MONTHS ENDED SEPTEMBER 30 (MILLIONS OF DOLLARS) 2003 2002
- ------------------------------------------------------------------------------------- ----------- -----------
Net income in accordance with U.S. GAAP 659 595
Adjustments affecting comprehensive income under U.S. GAAP
Additional minimum liability for employee future benefits
(SFAS No. 87)(12) 14 -
Tax impact of additional minimum liability for employee future benefits (5) -
Unrealized gain/(loss) on derivatives(2) 17 (4)
Tax impact of gain/(loss) on derivatives (3) -
Foreign currency translation adjustment (43) 1
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Comprehensive income in accordance with U.S. GAAP 639 592
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CONDENSED BALANCE SHEET IN ACCORDANCE WITH U.S. GAAP (6)
SEPTEMBER 30, December 31,
(MILLIONS OF DOLLARS) 2003 2002
- ------------------------------------------------------------------------------------- ------------ ------------
Current assets 1,008 1,074
Long-term energy trading assets(3) - 218
Long-term investments(4) (7) 1,838 1,629
Plant, property and equipment(8) 15,370 14,992
Regulatory asset(9) 2,659 2,578
Other assets(2) 1,291 893
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22,166 21,384
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Current liabilities(10) 2,076 1,918
Provision for loss on discontinued operations 169 234
Long-term energy trading liabilities(3) - 41
Deferred amounts(7)(8) 640 593
Long-term debt(2) 9,314 8,963
Deferred income taxes(9) 2,989 2,692
Preferred securities(11) 694 694
Trust originated preferred securities - 218
Shareholders' equity 6,284 6,031
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22,166 21,384
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STATEMENT OF OTHER COMPREHENSIVE INCOME IN ACCORDANCE WITH U.S. GAAP
Minimum
Cumulative Pension Cash Flow
Translation Liability Hedges
(MILLIONS OF DOLLARS) Account (SFAS No. 87) (SFAS No. 133) Total
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Balance at January 1, 2002 13 (56) (9) (52)
Unrealized loss on derivatives, net of tax(2) - - (4) (4)
Foreign currency translation adjustment 1 - - 1
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Balance at September 30, 2002 14 (56) (13) (55)
Changes during the period September 30 to
December 31, 2002(12) - (40) - (40)
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Balance at December 31, 2002 14 (96) (13) (95)
ADDITIONAL MINIMUM LIABILITY FOR EMPLOYEE FUTURE
BENEFITS, NET OF TAX(12) - 9 - 9
UNREALIZED GAIN ON DERIVATIVES, NET OF TAX(2) - - 14 14
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (43) - - (43)
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BALANCE AT SEPTEMBER 30, 2003 (29) (87) 1 (115)
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(5) Other expenses included an allowance for funds used during construction of
$1 million for the nine months ended September 30, 2003 (September 30, 2002
- $4 million).
(6) In accordance with U.S. GAAP, the condensed Statement of Consolidated
Income and Balance Sheet are prepared using the equity method of accounting
for joint ventures. Excluding the impact of other U.S. GAAP adjustments,
the use of the proportionate consolidation method of accounting for joint
ventures, as required under Canadian GAAP, results in the same net income
and Shareholders' Equity.
(7) Effective January 1, 2003, the Company adopted the provisions of Financial
Interpretation (FIN) 45 that require the recognition of a liability for the
fair value of certain guarantees that require payments contingent on
specified types of future events. The measurement standards of FIN 45 are
applicable to guarantees entered into after January 1, 2003. For U.S. GAAP,
the Company has recorded the fair value of the guarantees ($4 million)
arising on the acquisition of the interest in Bruce Power L.P. as a
liability and an increase in the cost of the investment.
(8) Effective January 1, 2003, the Company adopted the provisions of SFAS No.
143 "Accounting for Asset Retirement Obligations", which addresses
financial accounting and reporting for obligations associated with asset
retirement costs. SFAS No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it
is incurred if a reasonable estimate of fair value can be made. The fair
value is added to the carrying amount of the associated asset. The
liability is accreted at the end of each period through charges to
operating expenses.
The property, plant and equipment of the regulated natural gas transmission
operations consist primarily of underground pipelines and above ground
compression equipment and other facilities. No amount has been recorded for
asset retirement obligations relating to these assets as it is not possible
to make a reasonable estimate of the fair value of the liability due to the
indeterminate timing and scope of the asset retirements. Management
believes that all retirement costs associated with the regulated pipelines
will be recovered through tolls in future periods.
The property, plant and equipment in the power business consists primarily
of power plants in Canada and the United States. The estimated fair value
of the liability for the power plants and associated assets as at January
1, 2003 was $6 million. The asset retirement cost, net of accumulated
depreciation that would have been recorded if the cost had been recorded in
the period in which it arose, is recorded as an additional cost of the
assets as at January 1, 2003. There were no material changes in the
estimated fair value of the liability during the nine months ended
September 30, 2003. The Company has no legal liability for asset retirement
obligations with respect to its investment in Bruce Power L.P. and the
Sundance A and B power purchase arrangements.
(9) Under U.S. GAAP, the Company is required to record a deferred income tax
liability for its cost-of-service regulated businesses. As these deferred
income taxes are recoverable through future revenues, a corresponding
regulatory asset is recorded for U.S. GAAP purposes.
(10) Current liabilities at September 30, 2003 include dividends payable of $6
million (December 31, 2002 - $125 million) and current taxes payable of
$181 million (December 31, 2002 - $150 million).
(11) Under U.S. GAAP, the preferred securities are classified as a liability.
The fair value of the preferred securities at September 30, 2003 was $626
million (December 31, 2002 - $743 million). The Company made preferred
securities charges payments of $42 million for the nine months ended
September 30, 2003 (September 30, 2002 - $43 million).
(12) Under U.S. GAAP, a net loss recognized pursuant to SFAS No. 87 "Employers'
Accounting for Pensions" as an additional pension liability not yet
recognized as net period pension cost, must be recorded as a component of
comprehensive income.
SUMMARIZED FINANCIAL INFORMATION OF LONG-TERM INVESTMENTS(13)
NINE MONTHS ENDED SEPTEMBER 30 (MILLIONS OF DOLLARS) 2003 2002
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INCOME
Revenues 806 588
Other costs and expenses (371) (196)
Depreciation (113) (106)
Financial charges and other (34) (84)
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Proportionate share of income before income taxes of long-term investments 288 202
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SEPTEMBER 30, December 31,
(MILLIONS OF DOLLARS) 2003 2002
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BALANCE SHEET
Current assets 407 246
Plant, property and equipment 3,189 3,197
Other assets (net) - 112
Current liabilities (181) (216)
Deferred amounts (net) (282) -
Non-recourse debt (1,281) (1,646)
Deferred income taxes (14) (64)
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Proportionate share of net assets of long-term investments 1,838 1,629
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(13) This includes those investments that are accounted for by the equity method
under U.S. GAAP (including those that are accounted for by the
proportionate consolidation method under Canadian GAAP).