EX-13.3 4 a05-13465_1ex13d3.htm EX-13.3

Exhibit 13.3

 

TRANSCANADA PIPELINES LIMITED

U.S. GAAP CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Condensed Statement of Consolidated Income and Comprehensive Income in Accordance with U.S. GAAP(1)

 

 

 

Three months
ended
June 30

 

Six months
ended
June 30

 

(millions of dollars)

 

2005

 

Restated
2004

 

2005

 

Restated
2004

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

1,333

 

1,237

 

2,622

 

2,503

 

Cost of sales

 

226

 

212

 

462

 

438

 

Other costs and expenses

 

417

 

399

 

832

 

787

 

Depreciation

 

230

 

210

 

458

 

422

 

 

 

873

 

821

 

1,752

 

1,647

 

Operating income

 

460

 

416

 

870

 

856

 

Other (income)/expenses

 

 

 

 

 

 

 

 

 

Equity income(1)

 

(57

)

(99

)

(145

)

(208

)

Other expenses(2)(3)

 

193

 

179

 

312

 

386

 

Dilution gain(3)

 

—

 

(40

)

—

 

(40

)

Income taxes

 

118

 

126

 

264

 

252

 

 

 

254

 

166

 

431

 

390

 

 

 

 

 

 

 

 

 

 

 

Net Income in Accordance with U.S. GAAP

 

206

 

250

 

439

 

466

 

Adjustments affecting comprehensive income under U.S. GAAP

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

5

 

4

 

10

 

7

 

Changes in minimum pension liability, net of tax

 

—

 

25

 

—

 

50

 

Unrealized loss on derivatives, net of tax(4)

 

(30

)

(16

)

(39

)

(29

)

Comprehensive Income in Accordance with U.S. GAAP

 

181

 

263

 

410

 

494

 

 

Reconciliation of Net Income

 

 

 

Three months
ended
June 30

 

Six months
ended
June 30

 

(millions of dollars)

 

2005

 

Restated
2004

 

2005

 

Restated
2004

 

Net Income in Accordance with Canadian GAAP

 

204

 

393

 

442

 

613

 

U.S. GAAP adjustments

 

 

 

 

 

 

 

 

 

Unrealized gain/(loss) on energy contracts(5)

 

1

 

(1

)

(9

)

3

 

Tax impact of unrealized gain/(loss) on energy contracts

 

(1

)

—

 

3

 

(1

)

Equity gain/(loss)(6)

 

1

 

(2

)

3

 

(3

)

Tax impact of equity gain/(loss)

 

—

 

1

 

(1

)

1

 

Unrealized gain/(loss) on foreign exchange and interest rate derivatives(4)

 

1

 

(7

)

1

 

(11

)

Tax impact of gain/(loss) on foreign exchange and interest rate derivatives

 

—

 

3

 

—

 

4

 

Deferred income taxes(7)

 

—

 

(5

)

—

 

(5

)

Amortization of deferred gains related to Power LP(3)

 

—

 

—

 

—

 

(3

)

Deferred gains related to Power LP(3)

 

—

 

(132

)

—

 

(132

)

Net Income in Accordance with U.S. GAAP

 

206

 

250

 

439

 

466

 

 

1


 

Condensed Statement of Consolidated Cash Flows in Accordance with U.S. GAAP(1)

 

 

 

Three months
 ended
June 30

 

Six months
 ended
June 30

 

(millions of dollars)

 

2005

 

2004

 

2005

 

2004

 

Cash Generated from Operations

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

262

 

301

 

611

 

641

 

Investing Activities

 

 

 

 

 

 

 

 

 

Net cash(used in)/provided by investing activities

 

(736

)

541

 

(746

)

403

 

Financing Activities

 

 

 

 

 

 

 

 

 

Net cash provided by/(used in) financing activities

 

19

 

(247

)

101

 

(427

)

Effect of Foreign Exchange Rate Changes on Cash and Short-Term Investments

 

20

 

(1

)

22

 

3

 

(Decrease)/Increase in Cash and Short-Term Investments

 

(435

)

594

 

(12

)

620

 

Cash and Short-Term Investments

 

 

 

 

 

 

 

 

 

Beginning of period

 

546

 

308

 

123

 

282

 

Cash and Short-Term Investments

 

 

 

 

 

 

 

 

 

End of period

 

111

 

902

 

111

 

902

 

 

Condensed Consolidated Balance Sheet in Accordance with U.S. GAAP (1)

 

(millions of dollars)

 

June 30,
2005

 

December
31, 2004

 

Current assets

 

919

 

907

 

Long-term investments(6)(8)

 

1,853

 

1,887

 

Plant, property and equipment

 

17,543

 

17,083

 

Regulatory asset(9)

 

2,509

 

2,606

 

Other assets

 

1,222

 

1,217

 

 

 

24,046

 

23,700

 

 

 

 

 

 

 

Current liabilities(10)

 

2,529

 

2,653

 

Deferred amounts(4)(5)(8)

 

837

 

785

 

Long-term debt(4)

 

10,041

 

9,753

 

Deferred income taxes(9)

 

2,982

 

3,048

 

Preferred securities(11)

 

564

 

554

 

Non-controlling interests

 

77

 

76

 

Shareholders’ equity

 

7,016

 

6,831

 

 

 

24,046

 

23,700

 

 

2


 

Statement of Other Comprehensive Income in Accordance with U.S. GAAP

 

(millions of dollars)

 

Cumulative
Translation
Account

 

Minimum 
Pension
Liability
(SFAS No. 87)

 

Cash Flow 
Hedges
(SFAS No. 133)

 

Total

 

Balance at December 31, 2004

 

(71

)

(26

)

(4

)

(101

)

 

 

 

 

 

 

 

 

 

 

Unrealized loss on derivatives, net of tax of $20(4)

 

—

 

—

 

(39

)

(39

)

Foreign currency translation adjustment, net of tax  of $18

 

10

 

—

 

—

 

10

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2005

 

(61

)

(26

)

(43

)

(130

)

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2003

 

(40

)

(98

)

(5

)

(143

)

 

 

 

 

 

 

 

 

 

 

Changes in minimum pension liability, net of tax  of $26

 

—

 

50

 

—

 

50

 

Unrealized gain on derivatives, net of tax of $12(4)

 

—

 

—

 

(29

)

(29

)

Foreign currency translation adjustment, net of tax  of $13

 

7

 

—

 

—

 

7

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2004

 

(33

)

(48

)

(34

)

(115

)

 

(1)               In accordance with U.S. GAAP, the condensed statement of consolidated income, consolidated cash flows and consolidated balance sheet of TransCanada PipeLines Limited (TCPL or the company) 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.

 

(2)               Other expenses included an allowance for funds used during construction of $1 million for the six months ended June 30, 2005 (June 30, 2004 - $1 million).

 

(3)               The company records its investment in TransCanada Power L.P. (Power LP) using the proportionate consolidation method for Canadian GAAP purposes and as an equity investment for U.S. GAAP purposes.  During the period from 1997 to April 2004, the company was obligated to fund the redemption of Power LP units in 2017.  As a result, under Canadian GAAP, TCPL accounted for the issuance of units by Power LP to third parties as a sale of a future net revenue stream and the resulting gains were deferred and amortized to income over the period to 2017.  The redemption obligation was removed in April 2004 and the unamortized gains were recognized as income.  Under U.S. GAAP, any such gains in the period from 1997 to April 2004 are characterized as dilution gains and, because the company was committed to fund the redemption of the units, the gains are recorded, on an after-tax basis, as equity transactions in shareholders’ equity.

 

The company’s accounting policy for dilution gains is to record them as income for both Canadian and U.S. GAAP purposes, however, U.S. GAAP requires such gains to be recorded directly in equity if there is a contemplation of reacquisition of units.  With the removal of the redemption obligation in April 2004, subsequent issuances of units by Power LP are accounted for as dilution gains in

 

3


 

income for both Canadian and U.S. GAAP purposes.

 

(4)               All foreign exchange and interest rate derivatives are recorded in the company’s consolidated financial statements at fair value under Canadian GAAP.  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.  Substantially all of the amounts recorded in the six months ended June 30, 2005 and 2004 as differences between U.S. and Canadian GAAP, for net income, relate to the differences in accounting treatment with respect to the hedged items and, for comprehensive income, relate to cash flow hedges.

 

(5)               Substantially all of the amounts recorded in the six months ended June 30, 2005 and 2004 as differences between U.S. and Canadian GAAP in respect of energy contracts relate to gains and losses on derivative energy contracts for periods before they were documented as hedges for purposes of U.S. GAAP and to differences in accounting with respect to physical energy trading contracts in the U.S. and Canada.

 

4


 

(6)               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.  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.

 

(7)               Under U.S. GAAP, SFAS No. 109 “Accounting for Income Taxes” requires that a deferred tax liability be recognized for an excess of the amount for financial reporting over the tax basis of an investment in a 50 per cent or less owned investee.

 

(8)               Financial Interpretation (FIN) 45 requires 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 purposes, the fair value of guarantees recorded as a liability at June 30, 2005 was $9 million (December 31, 2004 - $9 million) and relates to the company’s equity interest in Bruce Power L.P.

 

(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 June 30, 2005 include dividends payable of $154 million (December 31, 2004 - $146 million) and current taxes payable of $194 million (December 31, 2004 - $260 million).

 

(11)         The fair value of the preferred securities at June 30, 2005 was $589 million (December 31, 2004 - $572 million).  The company made preferred securities charges payments of $24 million for the six months ended June 30, 2005 (June 30, 2004 - $24 million).

 

Summarized Financial Information of Long-Term Investments

 

The following summarized financial information of long-term investments 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).

 

 

 

Three months
ended
June 30

 

Six months ended
June 30

 

(millions of dollars)

 

2005

 

2004

 

2005

 

2004

 

Income

 

 

 

 

 

 

 

 

 

Revenues

 

278

 

304

 

569

 

579

 

Other costs and expenses

 

(158

)

(148

)

(299

)

(267

)

Depreciation

 

(36

)

(40

)

(76

)

(73

)

Financial charges and other

 

(27

)

(17

)

(49

)

(31

)

 

 

57

 

99

 

145

 

208

 

 

(millions of dollars)

 

June 30,
2005

 

December 31,
2004

 

Balance sheet

 

 

 

 

 

Current assets

 

308

 

361

 

Plant, property and equipment

 

2,973

 

3,020

 

Current liabilities

 

(173

)

(248

)

Deferred amounts (net)

 

(245

)

(199

)

Non-recourse debt

 

(991

)

(1,030

)

Deferred income taxes

 

(19

)

(17

)

Proportionate share of net assets of long-term investments

 

1,853

 

1,887

 

 

5