EX-2 4 a2115536zex-2.txt EXHIBIT 2 EXHIBIT 2 SECOND QUARTER REPORT 2003 TCPL - 16 CONSOLIDATED INCOME
(unaudited) Three months ended June 30 Six months ended June 30 (millions of dollars) 2003 2002 2003 2002 ----------------------------------------------------------------- -------------- --------------- --------------- REVENUES 1,311 1,345 2,647 2,591 OPERATING EXPENSES Cost of sales 189 170 369 303 Other costs and expenses 382 383 809 737 Depreciation 217 213 432 420 ----------------- -------------- --------------- --------------- 788 766 1,610 1,460 ----------------- -------------- --------------- --------------- OPERATING INCOME 523 579 1,037 1,131 OTHER EXPENSES/(INCOME) Financial charges 205 218 409 439 Financial charges of joint ventures 23 22 45 45 Equity income (26) (8) (84) (18) Interest and other income (22) (11) (35) (22) ----------------- -------------- --------------- --------------- 180 221 335 444 ----------------- -------------- --------------- --------------- INCOME BEFORE INCOME TAXES 343 358 702 687 INCOME TAXES - CURRENT AND FUTURE 127 138 263 266 ----------------- -------------- --------------- --------------- NET INCOME 216 220 439 421 PREFERRED SECURITIES CHARGES 9 9 18 18 PREFERRED SHARE DIVIDENDS 5 6 11 11 ----------------- -------------- --------------- --------------- NET INCOME APPLICABLE TO COMMON SHARES 202 205 410 392 ----------------- -------------- --------------- --------------- ----------------- -------------- --------------- ---------------
See accompanying Notes to the Consolidated Financial Statements. SECOND QUARTER REPORT 2003 TCPL - 17 CONSOLIDATED CASH FLOWS
(unaudited) Three months ended June 30 Six months ended June 30 (millions of dollars) 2003 2002 2003 2002 --------------------------------------------------------------------------- -------------- --------------- --------------- CASH GENERATED FROM OPERATIONS Net income 216 220 439 421 Depreciation 217 213 432 420 Future income taxes 53 56 127 109 Equity income in excess of distributions received (8) (1) (59) (5) Other (44) (50) (48) (52) -------------- -------------- --------------- --------------- Funds generated from operations 434 438 891 893 Decrease/(Increase) in operating working capital 33 (2) 25 (56) -------------- -------------- --------------- --------------- Net cash provided by continuing operations 467 436 916 837 Net cash (used in)/provided by discontinued operations (88) (7) (84) 51 -------------- -------------- --------------- --------------- 379 429 832 888 -------------- -------------- --------------- --------------- INVESTING ACTIVITIES Capital expenditures (107) (98) (183) (215) Acquisitions, net of cash acquired (3) - (412) - Disposition of assets - - 5 - Deferred amounts and other (47) (91) (70) (74) -------------- -------------- --------------- --------------- Net cash used in investing activities (157) (189) (660) (289) -------------- -------------- --------------- --------------- FINANCING ACTIVITIES Dividends and preferred securities charges (149) (140) (288) (267) Notes payable repaid, net (291) (69) (82) (240) Long-term debt issued 475 - 475 - Reduction of long-term debt (50) (24) (59) (116) Non-recourse debt of joint ventures issued 29 4 46 5 Reduction of non-recourse debt of joint ventures (32) (29) (48) (42) Common shares issued 2 16 18 31 -------------- -------------- --------------- --------------- Net cash (used in)/provided by financing activities (16) (242) 62 (629) -------------- -------------- --------------- --------------- INCREASE/(DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 206 (2) 234 (30) CASH AND SHORT-TERM INVESTMENTS Beginning of period 240 271 212 299 -------------- -------------- --------------- --------------- CASH AND SHORT-TERM INVESTMENTS End of period 446 269 446 269 -------------- -------------- --------------- --------------- -------------- -------------- --------------- ---------------
See accompanying Notes to the Consolidated Financial Statements. SECOND QUARTER REPORT 2003 TCPL - 18 CONSOLIDATED BALANCE SHEET
JUNE 30, 2003 December 31, (millions of dollars) (unaudited) 2002 ------------------------------------------------------------------------------------------------ ----------------------- ASSETS CURRENT ASSETS Cash and short-term investments 446 212 Accounts receivable 604 691 Inventories 168 178 Other 101 102 ----------------------- ----------------------- 1,319 1,183 LONG-TERM INVESTMENTS 713 291 PLANT, PROPERTY AND EQUIPMENT 16,975 17,496 OTHER ASSETS 996 946 ----------------------- ----------------------- 20,003 19,916 ----------------------- ----------------------- ----------------------- ----------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable 215 297 Accounts payable 789 902 Accrued interest 206 227 Current portion of long-term debt 580 517 Current portion of non-recourse debt of joint ventures 20 75 Provision for loss on discontinued operations 217 234 ----------------------- ----------------------- 2,027 2,252 DEFERRED AMOUNTS 326 353 LONG-TERM DEBT 8,983 8,815 FUTURE INCOME TAXES 318 226 NON-RECOURSE DEBT OF JOINT VENTURES 1,174 1,222 JUNIOR SUBORDINATED DEBENTURES 239 238 ----------------------- ----------------------- 13,067 13,106 ----------------------- ----------------------- SHAREHOLDERS' EQUITY Preferred securities 673 674 Preferred shares 389 389 Common shares 4,632 4,614 Contributed surplus 266 265 Retained earnings 1,005 854 Foreign exchange adjustment (29) 14 ----------------------- ----------------------- ----------------------- ----------------------- 6,936 6,810 ----------------------- ----------------------- 20,003 19,916 ----------------------- ----------------------- ----------------------- -----------------------
See accompanying Notes to the Consolidated Financial Statements. SECOND QUARTER REPORT 2003 TCPL - 19 CONSOLIDATED RETAINED EARNINGS
(unaudited) Six months ended June 30 (millions of dollars) 2003 2002 ------------------------------------------------------------------------------------------------------------ --------------- Balance at beginning of period 854 586 Net income 439 421 Preferred securities charges (18) (18) Preferred share dividends (11) (11) Common share dividends (259) (239) --------------- --------------- 1,005 739 --------------- --------------- --------------- ---------------
See accompanying Notes to the Consolidated Financial Statements. SECOND QUARTER REPORT 2003 TCPL - 20 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 or the company) were exchanged on a one-to-one basis for common shares of TransCanada Corporation (TransCanada). As a result, TCPL became a wholly-owned subsidiary of TransCanada. The consolidated financial statements for the six months ended June 30, 2003 include the accounts of TCPL and the consolidated accounts of all its subsidiaries. 2. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of TCPL have been prepared in accordance with Canadian generally accepted accounting principles. The accounting policies applied are consistent with those outlined in the company's annual financial statements for the year ended December 31, 2002. These consolidated financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the respective periods. These consolidated financial statements do not include all disclosures required in the annual financial statements and should be read in conjunction with the annual financial statements included in TransCanada PipeLines Limited's 2002 Annual Report. Amounts are stated in Canadian dollars unless otherwise indicated. Certain comparative figures have been reclassified to conform with the current period's presentation. Since a determination of many assets, liabilities, revenues and expenses is dependent upon future events, the preparation of these consolidated financial statements requires the use of estimates 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. SECOND QUARTER REPORT 2003 TCPL - 21 3. SEGMENTED INFORMATION
TRANSMISSION POWER CORPORATE TOTAL Three months ended June 30 ------------------- ------------------- ------------------- -------------------- (unaudited - millions of dollars) 2003 2002 2003 2002 2003 2002 2003 2002 --------------------------------------------- --------- -------- --------- --------- --------- --------- ---------- --------- Revenues 944 1,002 367 343 - - 1,311 1,345 Cost of sales - - (189) (170) - - (189) (170) Other costs and expenses (301) (286) (79) (95) (2) (2) (382) (383) Depreciation (195) (198) (22) (15) - - (217) (213) --------- -------- --------- --------- --------- --------- ---------- --------- Operating income/(loss) 448 518 77 63 (2) (2) 523 579 Financial and preferred equity charges (194) (208) (3) (3) (22) (22) (219) (233) Financial charges of joint ventures (22) (22) (1) - - - (23) (22) Equity income 10 8 16 - - - 26 8 Interest and other income 3 - 4 4 15 7 22 11 Income taxes (101) (122) (30) (24) 4 8 (127) (138) --------- -------- --------- --------- --------- --------- ---------- --------- NET INCOME APPLICABLE TO COMMON SHARES 144 174 63 40 (5) (9) 202 205 --------- -------- --------- --------- --------- --------- ---------- --------- --------- -------- --------- --------- --------- --------- ---------- ---------
TRANSMISSION POWER CORPORATE TOTAL Six months ended June 30 ------------------- ------------------- ------------------- -------------------- (unaudited - millions of dollars) 2003 2002 2003 2002 2003 2002 2003 2002 --------------------------------------------- --------- -------- --------- --------- --------- --------- ---------- --------- Revenues 1,904 1,943 743 648 - - 2,647 2,591 Cost of sales - - (369) (303) - - (369) (303) Other costs and expenses (605) (546) (200) (187) (4) (4) (809) (737) Depreciation (389) (390) (43) (30) - - (432) (420) --------- -------- --------- --------- --------- --------- ---------- --------- Operating income/(loss) 910 1,007 131 128 (4) (4) 1,037 1,131 Financial and preferred equity charges (390) (414) (5) (6) (43) (48) (438) (468) Financial charges of joint ventures (44) (45) (1) - - - (45) (45) Equity income 30 18 54 - - - 84 18 Interest and other income 8 6 8 7 19 9 35 22 Income taxes (212) (235) (61) (48) 10 17 (263) (266) --------- -------- --------- --------- --------- --------- ---------- --------- NET INCOME APPLICABLE TO COMMON SHARES 302 337 126 81 (18) (26) 410 392 --------- -------- --------- --------- --------- --------- ---------- --------- --------- -------- --------- --------- --------- --------- ---------- ---------
TOTAL ASSETS JUNE 30, 2003 December 31, (millions of dollars) (unaudited) 2002 ---------------------------------------------------------------------------------- ------------------ Transmission 16,363 16,979 Power 2,608 2,292 Corporate 853 457 -------------------- ------------------ Continuing Operations 19,824 19,728 Discontinued Operations 179 188 -------------------- ------------------ 20,003 19,916 -------------------- ------------------ -------------------- ------------------
SECOND QUARTER REPORT 2003 TCPL - 22 4. LONG-TERM DEBT On June 9, 2003, the company issued US$350 million of unsecured 4.00 per cent notes maturing on June 15, 2013. On July 3, 2003, the company redeemed the US$160 million 8.75 per cent Junior Subordinated Debentures. Holders of these debentures received US$25.0122 per US$25.00 of the principal amount, which included accrued and unpaid interest to the redemption date, without premium or penalty. 5. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS The following represents the significant changes to the company's risk management and financial instruments since December 31, 2002. FOREIGN INVESTMENTS At June 30, 2003 and December 31, 2002, the company had foreign currency denominated assets and liabilities which created an exposure to changes in exchange rates. The company uses foreign currency derivatives to hedge this exposure on an after-tax basis. The cross-currency swaps have a floating interest rate which the company partially hedges by entering into interest rate swaps and forward rate agreements. The company's portfolio of foreign investment derivatives is comprised of contracts for periods up to four years. The fair values shown in the table below for foreign exchange risk are offset by translation gains or losses on the net assets and are recorded in the foreign exchange adjustment in Shareholders' Equity.
ASSET/(LIABILITY) JUNE 30, 2003 (millions of dollars) (unaudited) December 31, 2002 -------------------------------------------------------------------------------------- ------------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ------------------------------ ------------------------------ FOREIGN EXCHANGE RISK Cross-currency swaps U.S. dollars 50 50 (8) (8) Forward foreign exchange contracts U.S. dollars - - (4) (4) ------------------------------------------------------------------------------------------------------------------------
At June 30, 2003, the notional principal amounts of cross-currency swaps were US$250 million (December 31, 2002 - US$350 million) and the notional principal amounts of forward foreign exchange contracts were nil (December 31, 2002 - US$225 million). SECOND QUARTER REPORT 2003 TCPL - 23
JUNE 30, RECONCILIATION OF FOREIGN EXCHANGE ADJUSTMENT 2003 December 31, (millions of dollars) (unaudited) 2002 ----------------------------------------------------------------------------------------------------- -------------- Balance at beginning of year 14 13 Translation (losses)/gains on foreign currency denominated net assets (115) 3 Foreign exchange gains/(losses) on derivatives, and other 72 (2) -------------- -------------- (29) 14 ----------------------------------------------------------------------------------------------------------------------
6. DISCONTINUED OPERATIONS In July 2001, the Board of Directors approved a plan to dispose of the company's Gas Marketing business. In December 1999, the Board of Directors approved a plan (December Plan) to dispose of the company's International, Canadian Midstream and certain other businesses. The company's disposals under both plans were substantially completed at December 31, 2001. The company mitigated its exposures associated with the contingent liabilities related to the divested gas marketing operations by obtaining certain remaining contracts in June and early July 2003 and simultaneously fully hedging the market price exposures of these contracts. The company remains contingently liable for certain of the residual obligations. At June 30, 2003, TCPL reviewed the provision for loss on discontinued operations and concluded that the provision was adequate and the continued deferral of the approximately $100 million of deferred after-tax gains related to the Gas Marketing business was appropriate. Accordingly, there was no earnings impact related to discontinued operations in second quarter 2003. Net income from discontinued operations was nil for the three and six months ended June 30, 2003 and 2002. The provision for loss on discontinued operations at June 30, 2003 was $217 million (December 31, 2002 - $234 million). The net assets of discontinued operations included in the consolidated balance sheet at June 30, 2003 were $142 million (December 31, 2002 - $90 million). 7. COMMITMENT On June 18, 2003, an agreement was reached among the Mackenzie Delta gas producers, the Aboriginal Pipeline Group (APG) and TCPL which governs TCPL's role in the Mackenzie Gas Pipeline Project. The Mackenzie Gas Pipeline Project would, if approved, 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, TCPL has agreed to finance the APG for its one-third share of project SECOND QUARTER REPORT 2003 TCPL - 24 definition phase costs which are currently estimated to be $80 million over three years. If the pipeline is approved and becomes operational, this loan will be repaid from APG's share of pipeline revenues. -------------------------------------------------------------------------------- TransCanada welcomes questions from preferred shareholders and potential investors. Please telephone: Investor Relations, at 1-800-361-6522 (Canada and U.S. Mainland) or direct dial David Moneta/Debbie Persad at (403) 920-7911. The investor fax line is (403) 920-2457. Media Relations: Glenn Herchak/Hejdi Feick at (403) 920-7877. Visit TransCanada's Internet site at: http://www.transcanada.com --------------------------------------------------------------------------------